Money is consistently ranked as the most significant source of stress among adults, so it’s not surprising that the idea of picking a budget planner might make your shudder. Deciding what to do with our income before we receive it is an excellent way to steer us away from the financially-dangerous “scarcity mindset” and emotional spending that can happen if you don’t have a budget planner.
Try using our guide to start thinking about what you need, value, and want in the present and future in order to create a spending plan that truly works for you.
1. Think in terms of your net income
When you start planning, recognize that your total salary isn’t the number you should be inputting into your budget planner. Regardless of where you live or work, you must first subtract your immediate and year-end tax obligations, money dedicated to saving and investment goals, retirement planning, and other expenses.
After you’ve subtracted these expenses, you can input your net income into your budget planner to have a more accurate idea of the money you’ll have to work with.
2. Monitor your spending habits
One of the biggest barriers to making a useful budget planner starts with being honest about our spending habits. Avoiding, ignoring, or denying the reality of your financial situation may help you stave off the stress of financial woes in the moment, but can lead to some serious budget-related issues.
In order to capitalize on other ways to save money, you must first get real about how you feel about money and honestly layout your expenses, savings, debts, income, and other obligations.
Whether you track your spending with an app, Excel sheet, or pen and paper, it’s tempting to omit expenses that don’t reflect favorably on us. Perhaps we are not as frugal as we wish, spend too much on unnecessary sweets and treats, go out too much, or add to our credit card debt in ways that are embarrassing.
Getting honest with yourself about the amount of money you spend on $6.00 lattes, alcohol, and your avocado-addiction is the only way to create a budget planner that can actually be useful.
3. Identify your goals
How you define your goals in your budget planner should depend upon your income, goals, time horizon, dependents, and other factors. However, regardless of the particularities of your situation, it’s important to recognize that saving and investing don’t have to be luxuries. By creating a budget planner, you may find that managing your money in a way that grows your wealth is possible for you too.
One tool you can integrate into your budget planner is the 50-30-20 spending rule. According to this strategy, about half of your budget should be reserved for life’s absolute essentials (food, shelter, insurance, and healthcare), around 30% to flexible spending (hobbies, fun activities, and non-essential clothes, products, and treats), and 20% to your personal financial goals (investing, saving, and paying off debts).
Determining how much of your paycheck will be dedicated to essentials, your fun fund, and financial goals ahead of time can help you trim down on unnecessary spending, which is a major source of debt. In the long run, this can help you craft a budget planner that really works for you.
4. Tweak your spending patterns
After you’ve identified your financial goals, you need to strategize how to meet those goals as part of your budget planner.
At Academy, one of our favorite strategies for meeting financial goals is the Pay Yourself First principal. This strategy refers to setting aside a part of your monthly income for a particular savings or investing goal before paying anything else, including bills. While this might seem risky, it isn’t if you identify your goals and are honest about your spending.
The PYF principal doesn’t change how much you spend, invest, or save. However, it does transform your savings and investment goals from an option into your greatest financial priority. Some experts believe this can help you develop tremendous wealth. They recommend setting up an automatic monthly transfer of up to 10-20% of your income and funneling it into your retirement savings, emergency fund, savings account, or investment fund.
Of course, you can tweak your spending in other helpful ways, too. Try some of our money-saving tips to save money on everything from furniture to groceries.
5. Review your spending regularly
Like physical wellness, financial fitness requires periodic monitoring. After all, if you don’t monitor your changing progress and needs, how can you know if your budget planner is working?
Try monitoring your spending, investments, savings, and other indicators of your financial fitness over time using apps, Excel sheets, accountability partners, and other methods that work for you. The more data you have, the better you can make your budget planner.
Ultimately, creating a budget planner might not dramatically change your income, spending, or other financial activities, but it can teach you to prioritize them differently. Using a budget planner can eliminate impulse spending and eliminate the think work related to divvying up your net income.
Over the long haul, using a budget planner can help you to trim spending and accumulate wealth even from an income that initially didn’t seem sufficient.