When we plan we succeed. We need a plan towards financial stability just like we need a recipe for making a cake. Does the cake usually come out looking like something from a celebrity’s kitchen? Nope, but what if we had no recipe? What if we weren’t sure what ingredients went into a cake? We might end up making a cookie or worse instead.
Let’s start with the basic ingredients needed to get ourselves financially on track:
- Checking and savings accounts
- Daily Budget Tracker/Monthly Budget Planner
- Job
- Credit
Why is a job number three on this list? Because we first need a plan to manage money regardless of how much we have and how we acquire it. What then is so important about both checking and savings accounts that make then number one?
- They keep our money safe, and we know where to find it
- They help us separate monthly bills from emergency funds
- They don’t cost us anything when we use them
Establishing these accounts can often be done with as little as $25 each, and they now give us a platform to start building our daily and monthly budget planner.
Design dictates function. A Monthly Budget Planner is simply the combination of your Daily Budget Tracker into a full month. So let’s start with designing your Daily Budget Tracker.
Your tracker can be either a blank or lined sheet of paper, or a computer spreadsheet. Either way you need to divide your sheet into two categories:
- Income
- Expenses
Under each section you need to record what you earned and where it came from, as well as how much you spent and what you spent it on. At the end of each day you’ll sit down and enter these amounts into your Monthly Budget Planner, which I’ll explain next.
Word of caution. Don’t justify a purchase today by saying you’ll avoid spending tomorrow. Do this instead: Avoid spending all of your budget today, save that remaining money until you have increased your daily budget to the cost of the item, then purchase it. Remember the goal is saving so save today and buy tomorrow.
A Monthly Budget Planner is going to be a bit more detailed than your tracker. It will have Income and Expense sections, but under each we will further refine categories as they fit your life.
Income can come from many sources:
- hourly pay
- tips
- commission
- daily handouts
- random events
- pensions/annuities/social security
- etc.
Think about the different types of income you currently have and make a separate column for each under your Income section, like this:
Next, make separate columns under your expenses section. Common expenses are:
- Rent/mortgage
- Food
- Daycare
- Medical/prescription
- Insurance (home/auto/health/etc.)
- Utilities (water/electric/trash/etc.)
- Phone/cable/internet
- Car payment
- Gas/bus fare
- Pet
- Household goods (toilet paper/paper towel, soap)
- Clothing
- Entertainment
I recommend list these from most-to-least important.
Monthly Budget Planner
Think inside the box.
Setting a budget for each category helps us live within our means. Now that we have our Monthly Budget Planner categories I recommend going back under your income section and listing how much income you expect in each category. Now add those amounts up. This is how much money we have to live on each month. With this amount in mind we can start setting budgets for each category under our expenses section. Note: It’s okay if if your current expenses exceed your current income! Right now what is most important is that you have an understanding of what your current income is and likely monthly expenses.
Now let’s follow the process for using our tracker and planners:
- Keep your daily planner on-hand and record your income and expenses throughout the day, and by category.
- Record your income and expenses under their appropriate section
- Add your incomes each day to see how far away you are from your monthly goal (total income) and subtract your expenses from each category’s budgeted amount to see how much you have left that you can spend for each category.
- Look at tomorrow’s daily budget planner and list out your expected costs. If you notice one category is going to exceed your budget you can make a plan to work through this dilemma
I hope this has been insightful and I welcome feedback and questions. Also, please visit these great partners for help establishing your checking and savings accounts!
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