Building a Money Plan
The first phase of managing your finances is to create and maintain a money plan. Follow these four easy steps:
1. Track your spending.
This first step is very important, as it helps identify where your money is going.
- In a spiral notebook or an Excel spreadsheet, write down everything you buy (or spend money on) for one entire month.
- Includes ALL your large and small expenses-- from rent to a trip to the vending machine.
- Use your online banking account to help record your purchases.
- Don’t forget to track your cash; ATM withdrawals count, too. Don't forget fees, if you incur any!
When you see your spending mapped out for the month, it's easier to see how little things add up.
2. Create a budget
Now that you see where your money is going, it’s time to make a plan (also called a BUDGET). This will keep you on track, help stretch your paychecks further, and keep you from accidentally bouncing a check or coming up short.
Use the Budget Worksheet to get started, and complete these items:
3. Know the strategies for saving.
- Pay yourself first-- make your savings goals the first priority of your budget.
- Many mistakes are made by paying bills first, then letting what's left drive your savings.
- It's hard to make real changes in your money habits or prepare to meet future goals when you're left with "too much month at the end of your money."
- Build up savings to be ready for any emergency that may arise.
- How much do you need in your emergency fund?
- There's your first savings goal!
- If you are going to save money, your fixed costs need to be in the proper proportion with your income. Some helpful guidelines:
- Your housing expenses should be between 25 - 35% of your income.
- Your debt payment should not exceed 15 - 20% of your take-home pay.
- If either factor is above these limits, focus on your debt-- find ways to consolidate, reduce expenses, and cut fees.
4. Keep your budget on track
To stay on track with your budget, you have to compare your actual expenses with what you had budgeted.
If you find that you are going over budget month after month, then it is time to reevaluate your plan. Here are some tips to help get you back on track:
- Don’t buy on impulse. Before you make purchase, consider if you have room for it in your budget.
- Don’t carry your debit and credit cards with you when you shouldn’t be buying. You can't use them if you don't bring them!
- Use cash. Take out the amount of cash you have budgeted for the week and put that in your wallet. Now you can see how much money is left to spend that week. When it's gone, you are done spending.
If you still find yourself going over budget you may need to take a look at needs vs. wants.
Once you have gained control of your finances, continue following your money plan. As your circumstances change, you will need to make updates. Your budget, needs, and wants will change over time.