Paying attention to your cash flow is the first and most important step in taking control of your finances. This means knowing exactly how much money you have coming in and going out each month. If you don’t know how much you have to spend, save, invest and give each month it makes it very difficult to live within your means and easy to go down the dark rabbit-hole of high-interest debt. It’s also nearly impossible to meet your financial goals without a solid plan in place; a plan that stems from having a good grasp on your money situation.
Okay, so having a budget will allow you to make and achieve your financial goals AND help you avoid following Alice down the (debt) rabbit-hole but how do you actually MAKE a budget? Read these 5 steps then download our Cash Flow Snapshot Worksheet and actually create your own budget!
Make a list of what you want to achieve in the short-, medium-, and long-term and make sure you set impactful goals. SMART goals are specific, measurable, attainable, realistic and time-based. Here are some ideas to get you started:
Start with your fixed inflows and outflows then list your variable inflows and outflows. Your fixed expenses will help accurately predict how much you will need to budget for whereas your variable expenses can act as a guide for your behaviours to help predict your future expenses.
Create categories for your expenses and income sources to stay organized and keep things simple. Your categories can be as broad or as specific as you like as long as they make sense to you and allow you to use your budget to achieve your financial goals. Some general examples are automotive, household, food, and clothing. You can also use a pen and paper to create your budget but an electronic version will have increased functions to analyze where your money is going (and can do the math for you).
Check your figures to ensure they are giving you an accurate snapshot of your cash flow. Ask yourself these questions:
Take a look at what your snapshot is telling you; what types of actions you can take to modify your behavior to reach your goals? Are you spending money where you don’t need to? Do you need to set up failsafes to help you follow through on your goals? Could you be a more efficient and effective spender and saver?
Here are some suggestions to achieve your goals:
Once you know what your overall goals are, you can create sub-goals to form a plan. Breaking down something that may seem too large to be achievable will help keep you accountable and motivated to achieve your larger goal.
Now you know how to create your personal budget, the only thing preventing you from getting on the road to achieving your financial goals is you. Get out of your own way and download our worksheet and put your knowledge into action if you haven’t already.