Budgeting 101

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“A budget is telling your money where to go, instead of wondering where it went.” -Dave Ramsey  

At the Archangel Group, we want to help support our clients in a variety of ways. With the holiday season upon us, we have put together some tips on how to set up a monthly budget so you can make your money work for you.

The best way to be prepared for the unexpected is to have a well thought out plan in place. A budget is simply a detailed accounting of how much money is coming in versus how much money is being spent. Tracking your income and planning out expenses accurately is the best way to create a budget that works best for your family.

There are a variety of advantages to having a budget in place month to month. Having more money at your disposal gives you more options. Life happens unexpectedly. So whether it’s happy news like preparing for a new baby or planning a wedding or something unfortunate like having a death in the family, car troubles, or unexpected medical expenses, there is a big advantage to having extra money leftover in your budget. Budgeting also helps you learn to save and put money aside for things you really want like a new car or maybe a luxurious vacation.

Some people view budgeting in a negative light, because they feel it will put constraints on what they can purchase. On the contrary, having a budget actually allows you the freedom to be intentional and mindful about the things you buy. It can help you identify ways you may be wasting your money unnecessarily. It also gives you the power and control to be able to delay instant gratification, which is a sign of maturity and a truly virtuous character trait. At the Archangel Group, we want to help others learn to set a budget so that they can take on everything the new year has to throw at them.

The first step in creating a budget is, by yourself or with your partner, take a full accounting of your money and calculate your net monthly income. Your net income is the money you take home after taxes . It is important that this number is accurate, because it is what you will be using to determine your monthly budget. So take your time and do a full assessment of where you stand financially.

Next, you need to identify all of your fixed expenses that recur monthly. For most of us, this presents itself in the form of bills for things like rent, phone/internet, car payments, student loans, and insurance. Make sure to also include all other fixed monthly expenses such as gym memberships, music/TV subscriptions, and all other recurrent spending.

Once you have that finished, then you can move on to your variable expenses, or the expenses which change from one month to the next. These may include groceries, utilities, household purchases, and entertainment. Also remember to take into account what time of year it is, so you can have a plan for holidays, birthdays, special events, or even back to school shopping. This is usually the longest part of the process, because it’s easy to lose track of how much we actually spend month to month.

The final step is to add up all of your monthly expenses and subtract that from your overall net monthly income. Hopefully that will leave you with a positive number. If not, then you may want to go back and see where you can make adjustments and cut back on some of your variable spending. If you have outstanding debts, make sure you focus on paying those down as soon as possible. You have to learn to live within your means or you will be setting yourself up for future financial ruin.

Establish some realistic short term goals and work on achieving those first. Once you can see yourself making progress, you will most likely be encouraged to go after even bigger long term financial goals like investing.

There are also now dozens of apps you can download on your phone that will help you keep track of exactly how much you’re spending by monitoring your accounts. These can be a helpful and even fun way to keep an eye on your money and discourage you from impulse spending.

Most importantly, do not ever compare yourself to the situations of others. You have to do what is best for you and your family. Stay focused on achieving your goals and take encouragement from each little victory to keep moving forward.

Once you have everything written and planned out, you will probably feel a lot more at ease. By allowing yourself to find extra money to save each month, you can start saving for the things you really want in life and do so free of guilt. It is also good to save, so if you do have something unexpected come up, you’ll be able to handle it without putting yourself in an irreversible financial situation.

Overall, budgeting is a great tool that gives you the power to make your money work for you.

For more helpful tips, check out www.archangelgroup.net to find out how The Archangel Group can assist you.