Now that the New Year is here, it’s time to get finances in shape. This month, learn effective methods to save, invest, and meet personal financial goals by creating a financial strategy in 4 simple steps.
Assessing finances can be a daunting task, so start small and find an approach that’s realistic and achievable for you.
Follow these 4 simple steps for an effective financial strategy when creating your budget.
1. Calculate income.
Create a spreadsheet to calculate the income of all the
members of the household.
This includes anyone living in the home, such as a spouse, children, or parents.
Remember to include other regular sources of income such as, dividend or interest income, rental income, pensions, social security, alimony, or child support.
2. Determine expenses.
There are two types of expenses: fixed and flexible.
Fixed expenses include items that are due on a regular basis, such as insurance or rent payment. These payments are typically the same dollar amount each time the bill is due.
Flexible expenses can be described as wants instead of needs. These expenses happen at irregular times and fluctuate in cost. Take an average over the past few months to get an accurate representation.
3. Assess goals.
Once expenses have been determined, one of the following three scenarios will occur:
Income is not enough to cover bottom line expenses. In this situation, it is best to either add an additional source of income or consider which monthly expenses can be dropped.
Income covers fixed expenses but not flexible spending.
In this situation, the basic financial needs are being met but spending on discretionary items is being over indulged.
The income available after paying those fixed expenses is considered “flexible money”.
Consider committing to taking a portion of each paycheck and putting it into a savings account, then limit flexible spending to an amount within the excess of each paycheck.
When the total income is greater than total expenses.
This is the ideal scenario, but if fallen under this category, it’s wise to create a strategy to meet long-term financial goals.
A portion of the budget should always be going towards a savings account and it is always a smart idea to keep tabs on discretionary spending to make sure one remains in this category.
4. Stick to it.
Track monthly expenses and set aside some “fun money”, this way one won’t feel too deprived or tempted to dip into money reserved for other areas.
Remember, the goal of a budget is to assist with managing spending and provide insight on weekly, monthly, and annual expenses.
Did You Know?
When individuals are stressed, they are more prone to impulse buys.
Going to the gym or participating in any type of exercise doesn’t just impact physical well-being, it can impact financial well-being too. Exercise reduces stress, which can prevent impulse buys.
In order to keep finances in shape this year and keep discretionary expenses in check, find ways to become more physically active!