Last Updated on January 23, 2020
Marie Forleo says, “Everything is Figureoutable,” and it really is true. But sometimes we get stuck in a mindset where things seem overwhelming and impossible. That’s why it’s so vital to know your goals, break them down into manageable bits, and act on them. Getting your financial life in order can seem overwhelming too, but it is so important to your present and future. And you can begin very simply, with a budget.
4 Steps to Create a Budget
Just like saving for retirement, budgeting isn’t taught in school and doesn’t come naturally to many people. So it’s something they fight against and end up resenting. But it doesn’t have to be that way, and it doesn’t have to be complicated. Because when you get down to it, a budget is just a way of looking at your money, which means it’s something you’re probably already doing, just in a less organized way.
1. Know Your Income
Start with knowing your after-tax income. It’s terrific when a job says they pay you $50,000 a year, but your take home pay is really the number you need to know. So get comfortable with your pay stub and direct your attention to what amount of money you really receive every two weeks.
2. Create a Budgeting System
Find a budgeting system that works for you, and most of all, makes sense to you. If the idea of carrying around envelopes to divide your money and spend on certain things makes you twitch, don’t use the envelope method of budgeting. Maybe a 50/30/20 split for your rent, expenses and savings makes sense to you. If you live in a big city and rents are very high, that split may not work for you at all, as you’re paying more than 50% of your income towards your rent. Maybe a zero based budget works best for you – where every dollar is accounted for and moved to its correct location.
Rent comes out, savings come out, groceries and expenses come out, and there isn’t anything left over because it is budgeted down to the dollar. Once you decide what system works best for your personality, decide if you will track your money in an analog system or in the digital realm. There are apps that can help you with budgeting as well, once you know what type you’re looking for.
3. Use an Automated Budgeting Tool
Automate your savings. The single best way to save for retirement is to make regular payments to yourself. But the same method works for anything you’re saving for. Say you’re putting $200 away every month for retirement, and you also have a big trip coming up. If you’re saving for retirement, automate your account to put $200 in your 401k or IRA and automatically put whatever amount is appropriate for you into another account for your trip. Once you get accustomed to the idea, you hardly miss it because you know you still have it, only it’s location has changed.
4. Practice Makes Perfect – Creating the Best Budget
Lastly, put it into practice. The best budget for you is the budget you stick to. It doesn’t do anyone any good if there’s a plan in place but no one follows it. The best budget for you is the one that you do.
Whether you’re saving for retirement, saving for the nearer future or both, these steps to create a budget will help you stay on track to achieve financial security. President of IRA Financial, Adam Bergman always stresses three important points to save for retirement, which can be applied to any saving strategy: start early, be consistent and trust the process. Creating a budget and sticking to it is easier than you may think.