The importance of building a budget
What’s the goal of a good budget?
The goal of budgeting is to create a plan that’s achievable and allows you to manage your money responsibly. Plain and simple, a budget maps out income and expenses over a period of time, and keeps you on track to achieve your individual financial goals.
What’s your purpose of money?
When in the beginning stages of budget planning, it’s important to understand your reason and motivation to improve your financial well-being. With that said, what is your purpose of money? Think beyond your monthly expenses. Your purpose should be empowering – things like family, freedom, or travel, to name a few. The key is to not overthink. As you plan, your “purpose of money” statement will become your motivation.
The ABC of budgeting
Follow these 3 simple steps to begin your budget planning:
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AnalyzeStart by looking at your bank statements to determine how much money is coming in, from where, and then where it’s going. Once you have your average monthly income, get a full picture of your average monthly expenses – think of your mortgage or rent, food, transportation, utilities, entertainment, pets, hobbies, impulse purchases, etc. Don’t change anything yet, just focus on what’s currently happening. Once you’ve completed your analysis, you’ll see either a deficit or a surplus. |
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BrainstormThink about how you might be able to increase your monthly income or adjust your spending habits. To increase cash flow, some people work a second job, cancel a subscription, meal prep lunch or sell items they no longer need. Sometimes switching to a credit card with a lower rate is a nice little savings hack. Jot down a list of ideas, even if they seem like a bit of a stretch at this point. |
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ChangeNow it's time to determine what changes you’re willing to commit to that will bring your cash flow into balance. Choose two or three ideas from your list that are realistic and achievable to start with. Remember, if you're too restrictive and cut out absolutely everything, there’s a higher risk of not being able to commit to your goal. |
Tip: You might stumble upon unexpected expenses. These are typically larger expenses that are not part of your normal budget (things like birthday presents or car maintenance) but you can still plan for them. If possible, set up a savings account to manage these expenses without going into debt. The goal should be to save three months’ worth of expenses.
Key takeaways: how to build your own budget
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Create your “purpose of money” statement. If you could create anything, what would you say your money is for? For example, you could say “money is for experiences with my family.” This will help keep you motivated.
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Follow the ABC method of budgeting, reflect on each step carefully when creating your plan.
Words of encouragement: stay inspired
You could be surprised at how much you spend in some areas or how little you really know about where your money is going. Be honest and ask yourself “what’s actually happening when it comes to my money?” Remember, your purpose is everywhere!