Where to begin when making a fresh start with your finances?

If you need to get your finances in check or make some changes, it is hard to know where to start. Today, I will share tips on how to get started with a budget. If you already work with an established budget, you might need to skip to the 2nd or 3rd tip. Knowing your money habits about spending and managing your finances will help you gain control of your finances. This blog isn’t about cutting spending to the bare bones or eliminating anything that could be considered an extra. It is about knowing your money numbers and your habits.

#1 Know your income and expenses.

A budget is a plan for how you will allocate your income to pay your expenses. For a budget to be a useful money management tool, you need to know specifically what your income is and what your expenses are. The only way you will be able to realistically create a spending plan to know your numbers.

Gather the information by looking at paystubs, debit card transactions and credit card statements from last month. Most people have consistent expenses from month to month. If you bought something last month that you don’t have to pay for this month, just make a note about the occasional expense.

Now find a budget template or create a file to record your income and expenses. Excel budget templates are great because the formatting work is done for you. If you like a simpler method, create a table in a word document or use paper and pencil/pen. Here is a link to a Nerd Wallet article about Budget templates

Now, enter your information. If you have more than one income source, enter each separately.

Entering your expenses may take a little more time. Fixed expenses will be easy because there will be one transaction for the month with a fixed amount. List those first. Then add how much you spent for flexible expenses like groceries, going out to eat, clothes, entertainment, household, children’s expenses, transportation, etc. This is your budget so you can create as many categories as you want. Try to avoid a ‘miscellaneous’ category. This category becomes a place to dump random expenses that don’t seem to fit any other category. It also because the default category for excess spending. A good budget has each expense accounted for.

Once you have all income and expenses added to the budget, do the math. Subtract the amount of expenses from income. Ideally, you want the balance to be zero or a positive number. If you worked with last month’s data, and you have a negative number, figure out how to pay for the expenses. Did you use a credit card and not pay the full balance? Did you move money from savings? Did you receive extra income that was not recorded? Was there a savings deposit that you didn’t record?

This process may have been a reality check for you. Knowledge is power. Now you know how much money you must spend each month and how much you are spending.

Let’s create a realistic budget for this month. If you needed to borrow money (use a credit card) to get your needs taken care of, you will need to figure out what to cut back on to get a balanced budget. Focus on needs first, then wants. Be honest with yourself about your needs and wants. This may take a few months to make behavior changes. Remember that you are in control of your money, your money is not in control of you.

#2 Track your spending.

Now that you have a budget to work with and know how much you are going to spend for each expense category, you need to track your spending throughout the month. Tracking spending is recording how much you spend so you know how much you have left to spend. Fixed expenses will be easy (again) because these expenses are usually due at the same time every month and you know what the amount will be. Flexible expenses can be more work to track.

Before you start the tracking process, figure out how you are going to track. It is important to not just track the amount spent but how many times you purchase the item. For example, if you regularly buy a coffee on the way to work, you need to know how many times you are doing that so you can adjust if needed.  The budget template may have an expenses tab already set up. Or you can create a page where you list the expense, cost, and category.

Once again, be honest with yourself. What you spend is what you spend. If tracking your spending causes you to think about the purchase, that’s good. We will get into the spending trade off in another post. One more tip about tracking spending, do it on a regular basis, every other day or so. If you wait a week or longer, this task won’t help you know how much you have left to spend. This is especially important for flexible spending.

#3 Review your spending.

The review can happen throughout the month because you need to know how much you have left to spend in each category. At the end of the month, the review will involve an objective assessment of what you did and determining if any changes need to be made. This first month of tracking will also help you make budget adjustments for next month.

Some things to consider for the review.

1.     Did you struggle to have enough money for necessities (food, transportation, personal care, clothing, etc.)?

2.     Were there any bills you were not able to pay?

3.     Did you have to use credit to finish out the month?

4.     Were you late on any payments?

5.     Did you incur any fees because of take payment or overdrafts?

If you answered yes to any of these questions, you may need to reduce spending in some of the categories. What you decide to reduce is up to you. Figure out if you need to just need to buy less or if you need to replace with a less expensive option.

Other considerations.

1.     What realizations did you have?

2.     Do you have more money to spend than you thought?

3.     Can you save more for future goals?

4.     Do you feel a sense of control over your finances?

5.     Which budget categories worked, and which ones did not?

6.     What did I spend on that I probably shouldn’t have?

Even if things didn’t go like you may have hoped, think about what you have learned about yourself and your finances. Tracking spending for me gives me a sense of control. It helps me feel better when I must make decisions about buying something or not. When I know my financial situation, I don’t feel bad about not buying clothes or going out to eat. I have more information about the decisions that must be made.

#4 Declutter your expenses.

There is a lot of information about decluttering our home, have you ever considered decluttering your finances? After tracking your spending, you may notice you are spending money on things you are not using. Or you could go without. Unsubscribe to any monthly expense that are no longer being used or are useful. Look closer at your utility statements, are there add-ons that are not being utilized? Is there something that you have a subscription to that can be paid for on a by usage basis rather than a monthly subscription?

Another way to reduce expenses is to unsubscribe from retail email lists. The emails can entice you into making a purchase because of the great deal you can get. If this is trigger for you to spend money, then consider unsubscribing. You can still get the deals when you log onto the retailer’s website if you need to make a purchase.

Summary

To get a fresh start with your finances do the following:

1.     Know your income and expenses to create a realistic budget.

2.     Track your spending.

3.     Review your spending.

4.     Declutter your expenses.

Leave a comment to let me know if my tips worked for you. Schedule a financial counseling session with me if you would like assistance.