The first step in gaining control of your finances is to build a money plan. There are four easy steps to follow when creating and maintaining a successful money plan.
Track your spending
The first step is very important and helps in identify where your money is going. In a spiral notebook or in an excel spreadsheet, write down everything you buy or spend money on for one entire month. This includes all your large and small expenses and everything from rent to a trip to the vending machine. Keep all your receipts and use your online banking account to assist you in recording your purchasing. Don’t forget to add cash too. Those ATM withdrawals are important too. As you monitor your spending you will see how little things add up and can make an impact on your finances.
Create a budget
Now that you see where your money is going each month, it’s time to make a plan. A budget will keep you on financial track and help you stretch your paychecks even further. Planning will keep you from accidently bouncing that check or coming up short one month. Use the Budget Worksheet to get started. On the worksheet you will complete these items:
Know the strategies for saving
Pay yourself first. It’s important to work savings goals into your budget and to pay your savings first. It’s important to build up a savings to be ready for any emergency that may arise. How much do you need in your emergency fund? That should be your first savings goal.
To allow yourself to save money, your fixed costs need to be in proportion with your income. For example, a rule of thumb is your housing expenses should be between 25 and 35% of your income. You should also aim to not have your debt payment exceed 15 – 20% of your take home pay. If it is over that limit you need to focus in on your debt-- find ways to consolidate and cut fees.
Keep your budget on track
To make sure you are staying on track with your budget it’s important that you compare your expenses with what you had budgeted. If you find that you are going over budget month after month, then it is time to reevaluate your plan. Here are some tips to help get you back on track:
Don’t buy on impulse. Before every purchase you should consider if you have room for this in your monthly budget.
Don’t carry your debit and credit cards with you when you shouldn’t be buying. If you don’t have them with you, you can’t use them.
Use cash. Take out the amount of cash you have budgeted for the week and put that in your wallet. Now you can see at all time how much money is left to spend that week.
If you still find yourself going over budget you may need to take a look at needs vs. wants.
Now that you have gained control of your finances remember to continue following your plan. You need to make necessary updates to your budget as your needs and wants change over time.