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Budgeting 101: Strategies for Building a Strong Financial Foundation

Couple planning out a budget.

Develop a realistic budget by tracking expenses, prioritizing savings, and distinguishing between needs and wants.

Find Your Income Streams

Foremost, you need to figure out how much money you are making before you can figure out how much you can save. Whether utilizing budgeting apps or traditional spreadsheets, recording and categorizing every expenditure offers invaluable insights into spending patterns. This disciplined approach not only brings financial habits into focus but also sets the stage for informed decision-making. By embracing this initial step, you lay the foundation for a purposeful budget—one that aligns with your goals, identifies potential savings, and brings financial clarity to every dollar you spend.

Track Your Expenses

Start by meticulously tracking your monthly expenses to gain a comprehensive understanding of your spending patterns. This initial step lays the foundation for effective budgeting, allowing you to identify areas where you can cut costs, allocate funds strategically, and make informed decisions towards financial well-being. Utilize tools, apps, or spreadsheets to record and categorize all expenditures, ensuring a thorough and accurate assessment of your financial landscape.

Fixed Expenses:
Fixed expenses are the stable, recurring costs that remain constant each month. These are typically non-negotiable obligations and include items like rent or mortgage payments, insurance premiums, subscription services, and loan repayments.

Variable Expenses:
On the other hand, variable expenses are the more flexible, fluctuating costs that can vary from month to month. These may include groceries, dining out, entertainment, and discretionary spending. Variable expenses offer more room for adjustment within your budget, providing opportunities for savings or increased spending control.

Find the sum of your income and expenses

This marks the pivotal step in the budgeting process, where you delve into managing your finances. Sum up your monthly income and expenses, then compare the two columns. Ideally, your income should surpass your expenses, resulting in a budget surplus. A surplus provides insight into your financial flexibility, indicating whether you can comfortably afford a higher car payment, an upgraded living arrangement, or an increased debt repayment.

However, if your expenses outweigh your income, you’re facing a budget deficit. While it’s a challenging position, it’s not insurmountable. Review your records to identify potential savings opportunities—consider cutting back on dining out, buying groceries in bulk, or exploring a more affordable living situation. Contemplate additional income sources, such as a second job. If necessary, temporarily reduce your savings contributions, even a minimal percentage, to build a financial cushion for emergencies. Every bit saved contributes to financial stability.

Set your financial goals

Once you are in a position where your income outweighs your expenses, you can set goals fit to your situation. Start thinking about the future: if you’re renting, will you be interested in buying a home? Do you have credit card debt you need to payoff? Are you interested in a new car down the line? Questions like these can be broken out into two types of goal: short term and long term.

Short-Term Goals:
These are the immediate milestones that you aim to reach within the next 6 to 12 months. Short-term goals could encompass building an emergency fund, paying off a high-interest credit card, or saving for a well-deserved vacation. They provide a sense of accomplishment and act as stepping stones toward more significant goals.

Long-Term Goals:
Long-term goals extend beyond the immediate horizon, typically spanning several years or even decades. Examples include saving for a down payment on a home, funding your children’s education, or planning retirement well-being. Long-term goals require strategic planning and consistent effort over time.

Make your plan

Now that you’ve pinpointed a goal, the next step is devising a strategy to attain it. Consider the scenario where your goal is long term: you aim to purchase a car within the next three years. Assuming you’ve already mastered the art of crafting a household budget, and your affordability calculation indicates you can manage payments on a $25,000 car, we recommend aiming for a 15% down payment, totaling $3,750. This equates to saving $1,250 per year or approximately $104 per month. If this aligns with your budget, initiate an automated savings plan with your bank, seamlessly incorporating it into your budget’s “expenses” category. Automated savings not only stream lines your progress but fortifies your commitment to the goal. When faced with the temptation to dip into your savings, reflect on your goal—consider which holds greater importance in your financial journey.

Review your budget

Regularly review your budget to track spending, monitor income variations, and assess adherence to limits. This proactive approach identifies deviations early, allowing timely adjustments. Scrutinize discretionary spending, align savings goals with objectives, and maintain budgetary boundaries for financial well-being.

Adjust your plan and goal as needed

Life is dynamic, and so are finances. Be flexible in adjusting goals to reflect changing circumstances. Regularly revisit objectives, ensuring they align with evolving needs and aspirations. This approach ensures your budget remains a responsive tool, guiding you toward sustained financial well-being.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Please consult your financial advisor prior to investing.



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