5 - Step Personal Budget

Updated: Jun 22, 2018

"Budget" alone can sound like "diet". Something we need to do, but really don't want to. We don't want you to fall off your budget. So, our best tip is to make your budget realistic. In order to maintain a healthy financial life, you need to know and maintain a budget, while still enjoying your life.

5 -Step Personal Budget

Step 1: Expenses

Step 2: Income

Step 3: Net Income or Debt

Step 4: Prioritize and Adjust

Step 5: Be Realistic

Why Should I Have A Budget?

Knowing exactly how much money are making and spending while at first thought can be truly overwhelming, can actually ease your money mind.

5 Step Budgeting Process

STEP 1: List Your Expense

a. Write down or type your bare necessities. These are easiest done with monthly expense and includes: mortgage or rent, utilities (gas, electric, water/sewer), public transportation or car, medical expenses and groceries. Really, those are the necessities. Figure out how much you pay each month and write down that number in bold or underline.

b. Include personal expenses.These things give you peace of mind: health insurance (if your employer doesn’t cover), auto insurance, life insurance, and home or rent insurance. You should have these things.

c. Wants v. needs. This list will include things that most people want, but don’t need, but will realitiscally have. If you’re expenses exceed your income, this is the place to cut back: internet access, cable or satellite television, phone, auto lease or loan, Netflix, music subscriptions, Starbucks, dining out, cocktails, manicures, pedicures, entertainment, travel.

Step 2: List All Sources of Income

List only take-home income (versus pre-tax salary). Don’t include things like tax returns or bonuses, if you don’t have to. You can incorporate those in later, but don't rely on them for your budgeting. If you are self employed, consider averaging what you make over the year and start out with extra savings for those lean months, plan, plan, plan.

Step 3: Evaluate your Net Income or Loss

Take your income and subtract your expenses. If you have a positive number, you are doing better than many. Take your extra money and put it into Savings or If you don't have an Emergency Fund of at least $500 - $3000, put the money there. You can also add it to a Roth IRA. If you have a negative number, which is probably why you're here, don't panic, instead let's plan.

Step 4: Prioritize and Adjust

While a personal budget can seem scary, it can actually open your eyes and bank account to the reality of your finances. You can cut back in some areas and free up more money. For instance, get 3 quotes on each of your insurances once per year to evaluate if you could be saving by switching. If you are not able to pay your monthly bills, let's see where you can cut back. Do you need as expensive of a car payment? If you live in a city, can you walk or bike to work? Do you need all 300 cable channels? Do you need an unlimited cell phone plan?

Step 5: Be Realistic

This is the part that so many financial websites, blog and "experts" don't mention, just like a diet, you need to be realistic about your financial plan. If you are able to be strict and never eat sugar or spend money, good for you. Most people can't, and it makes them fall off their diet and financial budget. So you need to face your money reality, and if you can cut back on going out to eat, even half the amount you currently do and put that money towards a bill or savings, you are doing well.

Revisit your budget as your income, debt and goals change and always be realistic so you can stick to a financial plan that helps you reach your goals and still allows you to enjoy life.

Disclaimer: The content on this site is provided for information and discussion purposes only. It is not intended to be professional financial advice and should not be the sole basis for your investment, financial or tax planning decisions. Under no circumstances does this information represent a recommendation to buy or sell securities, or any other products, or services. All content and information is subject to change at anytime.


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