Understanding the ins and outs of your finances is an absolute necessity if you are working towards financial independence! In other words: you need a budget. Budgeting allows you to identify what comes in and out of your accounts so that you can plan for your goals, whether they’re short-term or long-term.
Don’t look at the word “budget” as a negative thing. A budget is a powerful tool that will help you take control of your spending! The CGS Team is going to take you through the basics of budgeting and explain why it is so important.
Budgeting Basics…
What is Budgeting?
Budgeting is the term used to describe the act of using a budget. A budget tracks all of the money coming to you, the expenses that are going out, and any savings that takes place in the interim.
A budget is not just for people who are living paycheck to paycheck; it’s also for those who have money and need a means of tracking that money. If you have financial goals, like buying a new house or car, then a budget will help you prepare to pay for those goals.
Why Budget?
Are you confused on where you can cut back your spending? Do you make more than your living expenses but can’t seem to save? Do you want to understand your finances?
A budget can provide answers to all of your financial questions. When you take the time to write down when and how much money comes in, and when and how much money goes out, you can start figuring out how to reach your goals.
If you take a look at your spending and see that you buy lunch every day or can’t go without your Starbucks latte during the week, you will be able to pinpoint the areas of your spending that are not helping you.
Use your budget to help you get in financial shape. If you have a specific savings goal, alter your spending to reach those goals.
How to Budget
You have plenty of options when actually setting up your budget. You can write your budget out on paper, use Excel, or buy software. Regardless of how you set your budget up, the same principles will apply.
First, decide on a weekly, bi-weekly or monthly budget. Depending on what you decide, write down how much income you earn in that timeframe. Include your gross and net (after taxes and deductions) amounts.
Next, write down your bill, credit card payment, and expense amounts for that timeframe. Include all recurring expenses as well.
After your recurring expenses have been tracked, write down any expenses are outside of your bill and living expense categories. This includes dining out, entertainment, gifts, coffee during the week, and more. Basically anything that you spend your money on that is not a requirement for living.
Once all of your income and expenses are written down, you will see exactly how much is left over (if any) during that timeframe. Use this number as a starting point for setting goals.
Do you see that you could have $150 leftover each month, but you go out to eat 3 times a week? When you take the time to track your income and expenses, you may have a spending realization like this!
If you can’t seem to find the time or you are scared at what you may find when writing your financials down, check out the CGS Personalized Budget Portfolios! CGS Founder Raya will take care of the dirty work for you!
We identify your financial situation and create a target situation based on your financial goals.
Related: 4 Rules to Follow When Setting Up Your Budget
Do you have any tips for creating or sticking to a budget? Share your thoughts and feedback with the community by leaving a comment below! We would love to hear from you!
1 thought on “Budgeting Basics”
I use an excel spreadsheet to track my income and monthly bills. This snows me what’s left over and I keep some money in one account for ending and put the rest away for savings