A lot of people ask me how they can get started reaching their financial goals. And my answer always starts with the “B” word:  Budget.

Having a budget means you understand where your money is coming from and where your money is going. And once you understand where it’s going, you then have a basis for future financial decisions. In this sense, a budget is the foundation to any financial plan.

 

Do the Math:

Start by listing the basic bills you pay each month such as rent/mortgage, utilities, car, student loan and credit card payments, gasoline, insurance, cable, phone and Internet.  Don’t forget to include money donated to charity, food, clothing, savings, travel expenses, entertainment and miscellaneous expenses.

A great budgeting tool to use is your on line bank or credit card statements. Often these will offer an itemized list of your monthly expenses.

 

I have a budget… Now What?

Making a budget is easy. The hard part is implementing action steps in result of your budget.  If you’re not willing to execute needed changes in result of preparing a budget, then it’s not worth any more than the paper you printed it on.

Subtract your monthly income by your monthly expenses to see what is left over.  This “leftover” money can serve as a piggy bank for your dreams.

Dedicate your piggy bank money to your goals, whatever they might be: paying down debt, saving for retirement, buying a home or vacation home, or taking a family trip. Continue to find ways to make your budget work for you…not the other way around.

Through budgeting, you may discover that you need to increase income–not just decrease expenses.  Consider a part-time job, over time work, or refinancing your house.  Do not consider borrowing from your 401(k), taking on additional debt, or ignoring your cash flow issue.

As with anything in life, perfecting your budget will take practice.  But there is no better starting point to financial success than a sound and basic budget. 

Check out these online budgeting tools to help you get started.