What’s the next step after you have taken a good hard look at your expenses?
(If you haven’t already read my blog about budgeting 101, take a look at that first, HERE.)
Plan Your Money
Too many times I see people making good money who don’t do this.
They just have this assumption that everything will work out.
If this sounds familiar, follow along closely.
Their monthly income is much greater than their fixed expenses, so they can just wing it and all will be fine.
And all too often, these people are left wondering why they don’t have any money left over at the end of the month to put into savings, contribute to their retirement accounts, or save for a vacation.
And then there are plenty of people who reach for the “dreaded” credit card when they “need” money before their paycheck is deposited. This ends up being a giant negative spiral that takes a lot of time and effort to dig yourself out of. (You CAN dig yourself out, but you will have to do some real work!)
Instead of just winging it, or reaching for that credit card when the account balance is too low, take the time to allocate your income. Look at all of your fixed monthly expenses (housing, utilities, vehicle payments, loan payments, insurance, subscriptions, etc) as well as your “flexible” monthly expenses (groceries, eating out, vehicle repair, gas, etc) and decide how much of your paycheck should be allotted for each expense.
Take your fixed expenses first — the ones with the same due dates every month (are there any of them that you can reduce or eliminate?? — Take a look at my 7 Free Magic Money Tips, if you haven’t picked those up yet to find ways to reduce your outlays) and take those expenses out of your monthly income.
Next, you’ll need to take some time to decide how much of your remaining income should be earmarked for different expenses. This should be made easier if you have already done the work to see where you have been spending money over the past three months (see my blog about tracking your expenses).
Is your monthly grocery bill more than you had thought you were spending? Do you tend to spend a lot on clothing or personal care?
Are you a lover of coffee and can’t imagine starting your day without your latte? Put it into your plan. Or maybe you really enjoy eating out and want to have a substantial amount set aside for that category.
What Are Your Goals?
Don’t forget to think about your goals. Your savings goals. Your debt payment goals. Your retirement goals. How can you get more of your money into these categories? Plan for them and fund them at the beginning of the month.
With all of your needs and wants now having a monthly dollar amount associated with them, how does your plan look? Does it seem reasonable? Are you still planning for enjoyment? Everyone is familiar with the old adage about all work and no play — the same can be said for all scrimping and no fun.
You Are Now In The Driver's Seat
Once you have determined how and where your money should be spent, YOU are in control of your money. You are not letting whim or whimsey dictate the balance on your bank account.
Much like you need to follow a map to reach your destination, you need to follow your spending plan. Having a detailed formula about your expenses is only useful if you actually follow it.
Stick To Your Budget By Focusing On Your Goals
So if you have only allocated $150/month for eating out and you have already spent $130… you probably shouldn’t go out to that new 5 star restaurant down the street. Maybe plan to do this next month instead.
If your entertainment budget is near it’s limit… maybe watching a movie on Netflix is the way to go rather than heading to the theater and blowing your budget in that category.
You get the idea. Stick to your allocated amounts. That might mean changing things up a little, but in the end, you will gain so much more confidence and financial freedom, that it will be so worth it.