If you are like most people, where you are now is not where you want to be. You envision yourself living a better life by spending your time and money on the things that are most important to you.
Humans are designed to grow. To achieve. To push their limits. But, most people have settled with just surviving.
It’s possible to change your financial future. You can do it simply by creating and sticking to a monthly budget.
Budgets have a bad rap. Most people view them as restrictive, not allowing you to spend your money how you want.
When in fact, a monthly budget is a tool. It allows you to organize your money and develop a blueprint for achieving your financial dreams. I would not be where I am today if it weren’t for my budget.
Having a master plan for your money is the secret to achieving your financial goals. It allows you to live better by focusing your income, savings, and spending on the items that are most important to you!
Revenue is the foundation of a monthly budget. Your income is the amount of money you receive on a regular basis. The 3 main types of income are active, portfolio, and passive.
When you exchange time for money, you earn what’s called an active income. For most people, this is a paycheck from a job and profits from a side hustle. Portfolio income is generated from paper assets like stocks and bonds. Passive income results from businesses that you own, but aren’t actively working in.
Be sure to include the funds you earn from other sources too, such as interest and rental income.
Some types of earnings aren’t paid out monthly. Dividends from stocks are paid quarterly. Account for these profits by dividing the quarterly amounts by 3. Then add them to your monthly income.
Tally all your revenue sources up to get your total monthly income. Next, you get to choose how you will divide the funds between your savings and expenses.
The foundation of building wealth is savings. It’s the difference between what you earn and what you spend.
If you don’t save, then you won’t have assets that can grow. Which makes it difficult to create wealth and live a better life.
Start with setting a goal. Create your savings target and begin working towards it.
Do you want to save $10,000 in 10 months? All you need to do is save $1,000 each month to meet the goal!
Add your monthly savings goal to your budget. This allows you to be proactively working towards it. Not reactively saving what is leftover!
Holding on to surplus cash will give you more confidence and reduce your stress. It also provides peace of mind, knowing you have funds available for whatever comes your way.
But, the most important thing savings provides is freedom. The freedom of choice. It yields (pun intended!) the ability to decide how you will spend your time and money. You can use it to buy more time or even your freedom!
The only ways to save more cash are to increase your income and reduce your expenses. Boosting your income is a more lengthy and time-consuming process.
Start with reducing your expenses. In a matter of minutes, you can have some quick wins and increase your savings!
Outflows are the final part of a monthly budget. This is the money that you spend on goods and services. There are two types of expenses, fixed and variable.
A fixed expense is anything you spend money on that doesn’t change from month to month. For example, payments on mortgages, loans, and insurance.
A variable expense is one that changes based on your wants. These include hobbies, entertainment, and eating out.
Great news, you have control over ALL your expenses! You can spend on the things that give you the most joy and cut out the ones that don’t.
Have you ever had buyer’s remorse? That feeling of regret that you experience after purchasing something you shouldn’t have, or spending way more than you planned.
The solution is intentional spending. Consciously using your money to get what’s most important to you. NOT spending based on what society tells you to want.
When you spend intentionally, you are using every dollar that comes in for a purpose. Some will provide for your needs and others for your wants. You get to choose!
A few questions to ask yourself are:
The point of intentional spending is clarity. Decide what‘s most important to you and adjust your spending accordingly.
Imagine that you are in the market for a new car. One has a payment of $250 and another $500. They both function as transportation and get you from Point A to Point B. But, would the extra $250 for Car 2 provide that much in additional happiness EVERY month?
Or, could you put that money towards a goal or hobby to achieve even greater happiness? There is no right or wrong answer. The decision and its resulting happiness are yours!
Try experimental spending. Alter the amount you consume on each of your variable expenses. Spend $0 one month and then more than your normal amount the next. Through trial and error, you will discover the categories that are truly most important to you. Then, simply adjust your budget and start spending more on those that make you happy and less on those that don’t!
Narrow your spending down to the one thing that brings you the greatest happiness. Increase your planned spending on this one category. Then, add it to your monthly budget. Make it your mission to spend every dollar you have allocated to it each and every month. This will help to maximize your happiness. (See I haven’t completely lost my mind or forgot the meaning of life!)
Try experimental spending on your fixed expenses, too! Substitute high-cost goods and services for their lower-cost alternatives. You may find the less expensive options provide a better value, and increase your cash flow. The perfect place to start is with your largest expenses: housing, transportation, and food.
If you don’t have a monthly budget, you are leaving your financial future up to chance. You run the risk of living above your means and not being able to achieve your financial goals. There is a reason that almost half of the workforce believes they won’t have enough money in retirement!
But, it‘s not enough to just create a monthly budget based on your income, savings, and spending. You must track your progress and stick to it while pursuing your goals. And it is easier than you think. Just sign up and use the FREE app from Personal Capital!
Your budget is the secret to achieving your financial goals. And if you aren’t currently on the path to your dreams, the best thing you can do is start. Right now. Create your budget, spend your money intentionally, and live a better life!
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