How to Accomplish Your Financial Goals
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The word budgeting can have a negative connotation. It’s similar to the word diet. One definition of diet is, the foods eaten by a particular person. Even if you eat chips and soda all day, that is your diet. The same can be said for a budget. A budget is the way you spend your money. It’s a plan for your money. Ultimately, a budget is the means by which we accomplish our financial goals.
When we think about it differently, budgeting really is a great thing because who doesn’t like accomplishing goals. The process of putting together a budget also doesn’t have to be difficult. It can be done in four easy steps.
Step 1. Start with your monthly after-tax income – This is usually your take-home pay or can be your net income (revenue less expenses) for business owners
Step 2. Determine where you are currently spending your money – This is where an app like Mint can be a great help. The Mint app tracks how much you spend and where you spend your money from month to month. Look over the last three months of expenses and note how much you spend in each different expense category.
Step 3. Separate your spending into two categories: essential versus non-essential (Needs vs. Wants) – Your essential spending usually falls within six categories: shelter, clothing, transportation, food, utilities, and health. Non-essential spending includes: personal care, entertainment, and those infrequent expenses such as vacations, birthdays, and holidays.
Step 4. Subtract your essential expenses from your monthly income and allocate what is left to savings, investing, and non-essential spending – How much allocated to each depends on your financial goals but a good rule of thumb is to save 10% of income and invest 10%.
This is where some work is involved but the key here is to focus on the financial goals. Creating and following a budget results in a happier less stressed life.
Also, remember it is a journey and even if you get off track for a month or two you can always get back on track and finish the race.
