Are you living comfortably within your means or struggling to make ends meet every month?
Are you on the right track with your monthly family budget? Do you even have a budget?
As we begin another year, it’s time to create your financial goals and family budget for the year.
Here are some helpful tips and worksheets to get you on the right track with your 2020 finances.
For those of you new to budgeting, this will give you a clear picture of your financial situation versus your income versus your expenses. For those of you who already have a budget, this is a reminder to review the numbers and make sure they are still accurate. If there have been any changes in your income or expenses, now is a good time to update your budget.
One of the best ways to stay on track with your financial goals this year is to create a family budget. If you don’t have one, you need it – now. It’s like a best friend who wants to help you break free from debt and achieve financial freedom. Listen to what he “says” and you will know what you need to do to live comfortably within your means. It’s a mighty piece of paper!
A base budget shows you how much money comes in, how it’s spent, and how much you have left at the end of the month (and hopefully you have some left). Developing a budget is serious business, and an achievable and realistic budget is the key to helping you reach your financial goals.
Be prepared to sit down with your financial records, pencil, calculator, scrap paper, and lots of patience. Feel free to work on part of the budget one evening and finish the next night. Creating a budget can take a few hours, but it doesn’t have to happen in a long marathon session.
To develop your household budget, follow these steps:
1. Start by printing the budget worksheet HERE.
2. Go through the categories in the worksheet and modify them according to your income and expenses. Add and remove categories based on your specific income and spending habits.
3. Calculate your average monthly income including net employment income, spouse’s income and all other sources of income.
4. Use your checkbook, invoices, and receipts from the past two or three months to calculate the average actual monthly expenses across the budget categories listed.
5. For expenses that occur more or less often than monthly, convert the annual amount to a monthly figure when calculating the monthly budget amount. For example, if your home insurance is paid annually, divide that annual cost by 12 to get the monthly amount.
6. Add up the income category and add up the expense category.
7. Subtract total expenses from total income to calculate your net income (Income – Expenses = Net income)
8. If your net income is a positive number, good for you! This means you have money left over at the end of the month after your expenses have been paid. Use any extra money to pay off debt and increase your savings. Remember that the extra money left in a checking account tends to be spent.
9. If your net income is a negative number then your expenses are greater than your income and it is time to make immediate adjustments to your expenses. You are living beyond your means and it is time to immediately apply some frugal living techniques. Read the article “Get out of debt” for more information on paying off your debt.
10. Review and update your budget quarterly (or at least every 6 months) to see if any changes need to be made and to make sure you stay on track. I know this looks like a lot of updates, but you can see at a glance if anything has changed in the categories and make the necessary changes. Your budget will let you know immediately if you are spending more than you should. “Listen to him” carefully and heed his warning if you overspend.
11. Once you have completed your budget, it is time to record your daily expenses to determine where you can cut expenses and control total expenses. Track your spending, every day, for everything you spend in a month (minimum of 2 weeks). I know this sounds like an incredibly time-consuming project (and it is), but it works – I promise. At the end of the month, you’ll have a clear picture of where your money REALLY is going and what non-essential expenses you can cut back immediately to get positive net income.
Set financial goals
* Use a financial goals worksheet like the one in thebalanceeveryday.com HERE. List your short, medium and long term goals. This worksheet will help you determine how much you need to save each week / month in order to reach your financial goals within the specified time frame.
* List your goals on the worksheet. Make sure you work with your spouse to set goals so that you are both on the same page when it comes to spending and saving.
* Determine how much you will need to set aside each week to achieve each goal within a specific time frame.
* Edit your household budget to include amounts for goals.
* Post your goals in an easy-to-see place to keep you motivated and on track.
* Review your goals on a monthly or quarterly basis to make sure you’re always on track. If you find that you are not meeting some of your goals, you may need to change your spending habits or edit the spreadsheet. Life goes by and sometimes you don’t reach a goal when you plan it. The key is to keep working towards the goal.
The next step for many people after getting rid of their debt is to strive for financial independence (FI). This is the time when you have saved enough to live on your investments and you no longer have to work to pay your expenses. There are people who come to FI in their twenties and people who don’t arrive until their sixties. No matter how old you are, it is never too late to use the methods used by the FI movement to become more financially secure.
I highly recommend the site Choosefi.com and encourages you to listen to the informative podcasts on the site. If you are new to FI, there are many beginner resources available on this website as well. And they’re all free! See more details on Choosefi.com.
You have now walked through the telltale world of budgeting and should have a much better idea of your financial situation. Keep updating your budget, especially as your expenses go down and you live more frugally. On the way to a fabulous, frugal and debt-free year!
As I always say, it’s your money – spend it wisely!