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isologo prosper americaFour Steps to Controlling Your Money



Decide & Act Now

CONTROL IS A DECISION

Wouldn’t it be nice to be totally in control of your money? You know, have money for the things you want now, while still making sure you have plenty for later? That’s the benefit when you create a budget and savings plan.  You may have heard, “pay yourself first!” at some point, and it’s good advice. Saving money is the cornerstone of a financially secure lifestyle, and building a clear budget will help you save more.

Setting aside money each month builds an effective habit that can create future wealth, while still leaving you time to enjoy with your family and friends now. Setting aside your hard-earned dollars also frees you from the emotional stress of dealing with everyday bills.

A budget is simply a plan for how to handle your money. Income, expenses, and savings are the essential elements of a budget. Let’s walk through the process of creating a budget together.

To help with this, you may want to use our budget worksheet.

excel_image   Link to Budget Worksheet

Step 1: Income.

Your first step in creating a budget is to know your take-home income. If you receive a paycheck, use the net pay – that is, the amount you receive after all the taxes and other fees are deducted. For those of you that receive tips or other compensation, be sure to add that into your income as well. If you are paid on commission, just use a conservative number that you believe is reliable and repeatable. Note: don’t count on bonuses. They can go away with little warning.  It is better to see hem as happy surprises, rather than depending on them for your regular expenses.

Step 2: Pay yourself first (Plan your savings)

Your next step is to plan out your savings. Remember that the key goal of creating a budget is to save money. Your savings plan is discussed in another section of this course, but I’ll touch on it briefly here. It’s important to build a budget where you put aside at least 10% of your money for long-term savings. This money should be set aside before you purchase any wants – items you don’t absolutely need for survival or income.

Step 3: Know and track your expenses

Once you complete the income and savings section of your budget, next move on to list your fixed expenses. Fixed expenses are the bills toward which you pay the same amount each month like rent, car payment, and insurance. Next, account for the fixed expenses you pay annually: car registration, gym membership dues, or anything else you pay every year. Enter these expenses into your monthly budget by taking the annual payment and dividing it by 12. For example, if your gym membership costs $240 a year, you should be saving $20 a month toward that bill.

The next step is to calculate your variable expenses. Most of us have cash that vanishes each month into unknown voids, like stops for coffee, gum, movies, events, or extra groceries. For now just enter how much you think you spend a month on variable expenses.

For the next month make it your goal to get a handle on your variable expenses.

There are several ways to track spending: save receipts, carry a small notebook, or tap into the variety of available cell phone apps. Another easy way to track day-to-day spending is by only using cash. Track how much cash you start with at the beginning of the month, and then monitor how much of that you spend during the course of the month. After 30 days you will have a good idea how much money you’re spending.

After you track your variable expenses for a month, compare that amount with your original estimate and adjust your budget accordingly.

Step 4: Make it a habit

It’s important to get in the habit of Budgeting Before Buying. This financial philosophy suggests that you should always budget and include all the costs associated with an item before you make a purchase decision. Consider what you can afford to spend on ‘wants’ after you put money aside in savings and your needs are taken care of. Budgeting before you make a purchase helps you set clear spending limits to mitigate the possibility of becoming emotionally involved in purchase decisions. Emotional attachments often lead people to spend well beyond their budgets.

Each of us has a limited amount of money available to spend. Being able to manage spending is critical to achieving financial success. More importantly, when you spend wisely you have more money available to save and invest. That means a brighter and richer future for you, your family, and your friends. Get started right now on your personal budget using the tools in this course.

Budget Step 1

Enter your income – net pay, tips, and any other compensation.

Budget Step 2

Plan your savings – set aside at least 10% of your income before you purchase any “wants.”

Budget Step 3

List fixed expenses – rent, car payment, insurance. Account for annual fixed expenses (gym memberships, auto registration) by dividing annual payment by 12. Calculate variable expenses – coffee, movies, special events. Track variable expenses for a month and adjust accordingly. 

Budget Step 4

Make your budget a habit. Focus on building one good habit at a time. As you discipline yourself to build a good habit, it will snowball, and new good habits will build too!

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