How to Create a Budget That Works To Reach Your Financial Goals

by Nakisha Wynn

Financial freedom, getting ahead, and building wealth, all start with one key component; knowing your finances. Understanding how much money is coming in and how much you’re spending help you determine how much you’re able to save. This is imperative when building wealth and getting ahead. The following tips will help you create a budget that works. A budget that makes sense for you can assist you in creating positive habits around money. This will help you to reach your financial goals more quickly and live a better quality of life.

Knowing Your Numbers is Key to Creating a Budget That Works

It is not as difficult as you thing to create a financial budget that works for your needs. Ideally, it makes sense to first figure out how much, overall, you owe. People who are successful with their finances are familiar with their net worth. This is simply an at-a-glance look at all of your assets and liabilities. Having this information is helpful because it lets you work from a concrete number that’s based on reality. If you only have a general idea of how much you own on your mortgage or your credit cards, it will be difficult to create a budget going forward. You don’t necessarily have to own property or investments to do this. Include expenses like car notes, or that Disney Visa card in your net worth statement so you have a clear and concise sense of your finances.

Assets to include 

  • Cash available in Checking or Savings Accounts
  • Investment accounts like mutual funds or CDs
  • Property that you own to include real estate, vehicles or jewelry
  • Retirement accounts or 401K plans

Liabilities to include

  • Mortgage
  • Car loans
  • Credit card debt
  • Student or other loans

How to Create A Monthly Budget that Works

Determine Your Monthly Income

When working to create a budget that works toward helping you reach your financial goals, including all of your income, is the first step. This will include your monthly household salary. If you receive regular consistent additional income from child support or other means, include that income here as well. Getting a clear picture of all of the income coming into your home will help you lay the groundwork for a simple budget that you can stick to on a regular basis. Add all of your income together and you’ve got your total monthly income.

The template I’ve provided is designed to help you work through your income and expenses and figure out a budget that works for your household. You can use it as a means to get your numbers down on paper and then transfer them to a spreadsheet or work directly from the template if that works better for you.

Include Your Fixed Monthly Expenses in Your Budget

Fixed expenses are those that don’t change from month to month. Creating a budget that works means accounting for these expenses before other expenses to ensure an accurate budget you can work with. Your mortgage or rent and car loan are fixed expenses to include when creating your monthly budget. Additionally, you’ll want to add in health insurance charges as well as car insurance, your cable, phone, and internet service as well as your water and utility bills.

What are Your Discretionary Expenses?

For the purposes of a household budget, discretionary expenses are expenses that can vary month-to-month. Often they include wants over needs, but for items like child-care, can also be considered needs as well. When people start working to pare down their spending and create a budget that works, they usually will see how they can cut their discretionary expenses. These are usually the ones that allow for the most leeway. Grocery spending for example is one of the biggest variable expenses families have. Similarly, expenses for child care, school supplies, and household items are necessary for many households. While you can shop around and reduce spending in these areas, they still make up a big part of your monthly budget.

Expenses that you have more control over like entertainment, dining out and travel are also lumped into discretionary expenses. Be sure to include items like gas for your vehicle, medical expenses, household, and vehicle repairs.

How to Create a Budget That Works for You

Once you have all of your numbers laid out in the included budget template, simply add your fixed expenses and your discretionary expenses together. This number becomes your total monthly expenses.  At this point, it’s wise to account for how much you want to add to your savings. You could include savings in your discretionary expenses or if you’re more disciplined, add it to your fixed expenses. If your finances vary greatly from month-to-month, often your surplus (the amount left over after you’ve subtracted your total expenses from your income) can determine the amount you’ll allocate to savings. So, to determine your surplus or ‘extra’ money, simply subtract your total expenses and from your income.

However you decide to work the numbers, creating a budget that works will help you move forward to financial independence, work toward money goals, and get your spending under control. Having a set budget can also help you better plan for the future or see where you can cut back. It’s also a great gauge to use when you’ve built up some savings to determine where you can afford to splurge a little and take that once-in-a-lifetime family vacation you’ve been dreaming about.

The most challenging aspect of creating a budget that works is ensuring that you’re including all of your monthly expenses in your spending. Often smaller bills like monthly streaming memberships, online photo-editing services, or cloud data-storage fees are forgotten. It can be helpful to scroll through your online banking account to make sure you’re accounting for all of your monthly expenses. This is also a good time to double-check that you’re still finding these services and memberships useful. Budgeting doesn’t have to be stressful or difficult. The key factors are knowing how much you make, how much you owe, and where your money is going each month. Once you have a handle on these three things, sticking to a budget becomes second nature and you’re on the path toward your financial goals and dreams.

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