Budgeting helps keep you on track toward financial independence. Start by listing all of your expenses—both fixed bills (such as rent or a mortgage payment) and variable costs (such as groceries, entertainment, and dining out). Next, set aside money for savings or debt repayment. When your budgeting strategy is complete, consider automating how the money from your paycheck flows directly into your accounts.
1. Create a Budget
Budgeting is a tool to help you keep control of your money. The easiest way to create one is by keeping track of expenses and income – this way you’ll know whether your spending aligns with your financial goals.
Gather several months’ worth of paycheck stubs, credit card statements, investment account statements, shopping receipts, and any other documentation showing what your earnings and expenditures are. In addition, set both short- and long-term goals, such as vacations or even saving up for a home down payment.
2. Create a Spending Plan
Tracking spending is an essential element of any successful budget. Whether using pen and paper, a spreadsheet, or one of Morgan Stanley’s digital solutions such as their Spending and Budgeting tool on online and mobile banking platforms like Mobile Banking Online and Mobile Banking Online (MLOBOL), be sure to record every single dollar received and spent.
First, list all of your monthly fixed expenses, such as rent/mortgage payments, utilities, and transportation costs. Next, include variable expenses like groceries and entertainment as variable costs; lastly, account for one-off or annual costs such as vacations or gifts to gain an accurate picture of your income and expenditures as well as help identify areas in which overspending may exist.
3. Create a Savings Plan
An effective savings plan will help you reach your financial goals. Start by compiling a list of needs and wants, then set aside part of your income each month for each expense category— for instance, “savings.” For instance, set aside $50 as “savings.”
To determine how much to save each month, track your spending for several weeks using a budgeting app or spreadsheet, credit card/bank statements, or even pen and paper. Such data will give an accurate picture of where your money is going as well as how much realistic savings there are each month.
4. Automate Your Spending
If your budgeting strategy takes more time (such as zero-based or envelope budgeting), automating payments may make reaching savings goals simpler. Start by writing down all your recurring expenses, such as rent/mortgage payments, utilities, and insurance premiums, as well as any other essential payments.
Record all your spending for several weeks using budget apps or online templates, then study bill dates and average costs to identify accounts that can be automated, including utility bills on autopay, subscriptions into one credit card account, or even setting up automatic deposits into your savings account each payday.
5. Set Goals
Budgeting requires setting financial goals. These may be short- or long-term; whatever they are should be specific, measurable, attainable, relevant, and time-based. Ascertain your monthly income and expenses. Include all sources of revenue, such as wages or salaries, tips, interest income, investment dividends, or any other money received as sources.
Once you have an accurate picture of your budgetary situation, determine your priorities. You might prioritize paying off debt or saving more for retirement. Depending on which form of budgeting approach you prefer, monthly goals for these categories might need to be set in order for this step.
6. Keep Track of Your Spending
Tracking your spending is an essential element of any budget, as it allows you to identify areas in which money is being wasted and make adjustments that can improve your financial position.
Step one in budgeting involves tracking how much you spend every month and categorizing expenses to understand which are necessary versus nonessential. Review bank and credit card statements, receipts, or look at your spending patterns over time to assess where to begin.
7. Set Aside Money for Emergencies
Unexpected expenses such as hospital bills or major car repairs can threaten your financial security if you don’t have an emergency fund set aside for them. A good rule of thumb is to set aside three to six months’ worth of essential costs in an emergency fund for such contingencies.
Start building your emergency savings plan by compiling all of your income and regular expenses from bank statements, receipts, or a budgeting tool. Next, categorize them according to necessities like housing, groceries, and utilities versus non-essentials like entertainment and subscription services. Finally, choose an emergency savings goal and break it into monthly goals so you can achieve it over time.
8. Don’t Overspend
Accurate tracking of spending is key to staying within budget, whether done manually or using an online budgeting app designed to assist in staying organized. Write down every expense made over seven days; review bank and credit card statements from previous months to arrive at monthly averages for expenses like housing, food, transportation, entertainment, and debt repayment.
Once you have your list in hand, prioritize fixed monthly expenses (such as rent/mortgage payments, utilities, and car payments) first. Use an envelope system for variable spending categories like groceries and gas.
9. Get your Family Involved
Engaging all members of a household in budgeting strategies is a great way to promote financial literacy and accountability, while regular meetings allow everyone a chance to discuss and address money-related issues that would otherwise go unattended.
To achieve long-term financial security, it’s crucial that debt repayment and saving for future goals are given top priority. An emergency savings fund may also prove invaluable as insurance against unexpected expenses that might disrupt your plans.
Utilize a budgeting app or spreadsheet to document and track expenses. Consider adopting Dave Ramsey’s zero-based budget approach, which requires tracking every dollar earned and spent, placing greater focus on spending habits.
