Following a budget is essential to financial health, but it can challenging for many people to create one and stick to it.
Learn how to prioritize your spending when creating a budget and how to adapt expert advice to your financial goals.
Whether you’re working towards business, fitness, or financial goals, what matters most is creating a well-designed plan to get you from where you are today to where you want to be in the future. When it comes to meeting financial goals, a budget is one of the first building blocks of a sound financial plan.
A budget shows how much income you’re bringing in and how much you plan to spend on different expenses. While you might not have much control over the inflow—household income—you can control the cash flowing out.
Create a budget by:
Action step: Make adjustments to spending based upon on the 3 steps above.
Ultimately, this will help you make financial decisions today that will help you meet tomorrow’s financial goals.
WHAT MATTERS MOST
When prioritizing spending goals, many families work towards building savings and investing while paying off debt.
A good financial advisor can help you to prioritize these goals based on your current financial situation, age, and other factors to help allocate the right amount to what's most important to you.
Wondering where to find the money to build savings and pay off debt? Begin by tracking your spending.
FOLLOW THE MONEY
Once you are ready to create a budget, begin by determining how much after-tax money flows in and out of your household. This gives you an overview of how well you are meeting your fixed and variable expenses, and how much money you could earmark for your goals (above). While recording your after-tax income from earnings, investments, or other income is simple, recording your cash outflows is many times more complicated.
You might have the best intentions to stick to a budget, but where does your money ACTUALLY go?
For at least month week, track your spending using either a spending tracker app or old-fashioned paper and pencil. Identify the spending categories for every dollar flowing out of your accounts. This will show you when and where your spending occurs. Are there any surprises? Where could you cut back on expenses? Identify areas where you overspent, as well as opportunities to cut costs.
WHAT A WELL-DESIGNED PLAN CAN PROVIDE
Building a personalized household budget, prioritizing your spending categories, and crafting an actionable financial plan to help you meet your goals can:
Here's to getting ready for the New Year and a new way of thinking about your budget. It's much more than just numbers.
-Paul R. Rossi, CFA