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How to Budget Yourself for Success

Budgeting. That dreaded process of meticulously tracking your expenses, saving your receipts, doing the math of your lifestyle. It is so much easier to just swipe that credit card and call it a day. So, why is it important?

Creating a budget is one of the first steps towards financial security and potentially the best way to achieve your goals. That car you’ve always wanted? Those student loans that sit in the back of your mind? Retirement? That dream vacation you have on your screensaver? Without a budget, those goals are unlikely to be achieved and you can be left feeling like you are scrambling to pay your living expenses, regardless of the salary that you’ve worked so hard to earn. 

So, how do you create a budget that allows you to balance your needs of today with your goals of tomorrow?

Step 1: What do you have to work with?

When creating your budget you need to start by understanding your income. This may be easy if you have a consistent paycheck each month. However, if you have irregular income then determine your budget based on the minimum amount you can rely upon each month. 

Step 2: What are your fixed expenses?

Every month there are things that we cannot avoid: groceries, car payments, student debt payments, mortgages, subscription services, etc. Total up what your fixed expenses are every month.

Step 3: What are your discretionary expenses?

We have all stopped by the Starbucks drive through for that $5 coffee on a slow day, but how often is it for you? If you are having a difficult time estimating your discretionary items, look at the past few months worth of credit card bills and identify where you are spending. This process can often be very revealing and expose where money has been “disappearing” to. 

Step 4: What is your surplus?

Subtract your fixed and discretionary expenses from your income to see how much is left over. If you are spending beyond your income then you may need to re-examine your expenses to see where you may need to reduce your spending. 

Step 5: What to do with your surplus?

Now, this is where daily choices can affect long term goals. How you use your surplus today may detract from what you can have for tomorrow. It is important to find a balance between saving for future goals and living a lifestyle that makes you happy. Have you factored in saving for retirement? Do you have an emergency fund? Is any of your wealth invested, growing, and working for you?

If you don’t feel like you have enough surplus to tackle your goals, you may consider re-evaluating your discretionary expenses. Does the $100/month gym membership have more value than paying off your student loans or saving for a family vacation? Are there alternative ways you can enjoy your hobbies without hurting your wallet? 

Budgeting is all about priorities. What do you value most and how can you design your budget to reflect those values?

It can be very difficult to get started once you decide to make changes. It can even be challenging to transition to simply paying attention to what you are spending. However, it is incredibly important to take charge of your money so it doesn’t take charge of you. Money is a great tool, but a terrible master and if you take a passive stance on your spending and saving, then you are taking a passive stance on accomplishing your goals. 

Therefore, create a budget that is based on your values. Choose to spend your discretionary allowance on items that increase the quality of your lifestyle. Make choices to cut out items that aren’t adding value and redistribute that money to your long term goals. The key is: balance your needs of today with your goals of tomorrow. Be the master of your money and take initiative to take control.

The Seven Step series will continue next week, keep an eye out to learn about the next step in your Financial Planning Journey.

If you are ready to take control of your financial future, contact us to learn how we can develop a personal plan to reach your goals. We can be reached at (480) 214-9596 or info@scfinancialservices.com.  Thank you!

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