By Denise Keiser, Fund Development Specialist at Elder Law of Michigan
Every money goal needs a plan. For example, if your goal is to reduce financial stress in your life this year, having the right budget may be a simple solution. Even if you’re trying to pay off debt or save for a vacation, a budget is the planning tool you need to find success.
In fact, research shows that having the right budget helps people become financially healthy, according to the Center for Financial Solutions Innovation. Although only one in three people are using a budget to help them stay on track with personal finances, data from the Center for Financial Services Innovation shows that financial behavior like using a budget to track and manage expenses is highly correlated with positive outcomes (like smashing your money goals!).
Consequently, if you’re ready to start accomplishing your money goals, start with these small steps to building the right budget. The good news is that a budget is a simple math process (income minus expenses), and it helps you gain control of your money.
Follow these steps to creating a budget the right way:
- Pen & paper, Excel spreadsheet, or a budgeting app (smartphone or computer)
- Your bills and monthly statements
- Checkbook register
First, locate your bills and monthly statements. At the top of your budget, place your total net income – the amount of money you bring home after all taxes and deductions have been withheld.
Next, list all bills and household expenses by category. Don’t be shy about breaking down expenses into subcategories. For example, in the category of food, break down and itemize groceries and eating out. Be thorough in listing expenses and review bills, bank statements, and your checkbook register for the past few months to be sure you have included all expenses. The number one mistake in monthly budgets is that expense categories are underestimated and in some cases, completely missing. Here is an example I created to show how you can setup budget categories:
Once you have your expenses listed in your budget add them all and then subtract the total from your total net income. This number should provide you with one of three results: a zero balance, a surplus, or a shortage.
If, after expenses have been subtracted from your net income, your result is a surplus, plug the amount back into a category in your budget, for example, savings (for a specific financial goal) or to reduce a debt or credit card. Remember, you want every dollar to have a job, and for this reason, you want the final result of your budget to be zero.
This result will help you take the next step in taking control of your money. Even if the result is zero or a shortage, you now know the reality of your money situation, and in upcoming tasks, you will be able to explore ways to cure this money problem. Start today by creating the right budget for you in these four simple steps:
- Write down your budget (or put it in an app)
- Know your net income
- Include all expenses
- Track your spending by category and adjust weekly or monthly
You can accomplish your goals if you start using a budget today!
Denise Keiser is a Fund Development Specialist with Elder Law of Michigan and has been a member of the Elder Law of Michigan team since August 2017. As a Fund Development Specialist, Denise assists Elder Law of Michigan’s leadership with donor management, grant writing, and communications.