Do you go from one month to another wondering where the money in your bank account went or are you experiencing financial stress? Even small transactions add up and when left unchecked, you may spend more than you earn or not put money away to support your goals.
There are many online resources available that can help you set up a budget/personal spending and saving plan, like budgeting apps. You can also use Google Sheets or a weekly tracking sheet to do it on your own (see below). No matter which method you choose, you should always follow the 30/50/20 rule for setting up your personal spending and saving plan.
Follow the steps below to measure how much you spend in relation to your income and to start putting money toward your goals:
- For a couple of months, track all of your expenses.
- After tracking for at least one month, analyze your expenses and group them into one of three categories: bills (rent, phone, tuition), needs (grocery, gas) and wants (restaurants, drinks, clothes). Create sub-categories to better understand where you’re spending your money within these broad categories.
- Create a budget for what you want to spend on each category for the next month. Make sure the budget is within your income.
- Set your budget to reflect a slight overestimate of your expenses and a slight underestimate of your income. This will help you in the beginning for it gives you a small buffer.
- At the end of the month, compare your actual spending to your budget and make note of items that are unnecessarily draining your money. Try minimizing these expenses and eventually cutting them out to set money aside for savings.
- At this point, if you see that you are having any challenges, we encourage you to prioritize your spending based on what is most important to you and your future. In this scenario, you would look at all of your expenses and put them into 3 categories:
- Priority 1: Critically important (Could include saving or investing)
- Priority 2: Important but not critical
- Priority 3: Things you could cut back on
- Once you better understand your priorities, you can more easily mold your income and spending around what its going to support both your short and long-term financial goals.
- Make it a habit to review and update your budget/personal spending and saving plan, until you get to the point where you not only spend within your income but are also saving and investing for your future.
- If you do not already have a personal finance life plan in place, we encourage you to create one now. Life Plans are used to help turn your dreams into goals and your goals into reality. To learn more about life plan creation, attend one of our Life Plan/financial goal setting Money Talks.
