The Steps to Master Budgeting

Mastering personal budgeting involves several key steps. While the thought of budgeting is often met with a groan, being disciplined in how you spend and invest your money can help you pursue your dreams in the end. Here’s a guide to help you guide your finances effectively:

Set Clear Financial Goals

Define your short-term and long-term financial objectives, such as saving for emergencies, paying off debt, saving for kids college, planning for retirement or taking a vacation. This helps prioritize your spending and savings.

Determine Your Post Tax Income

Calculate your net income, which is the amount you take home after taxes and deductions. This gives you a clear picture of your available funds for budgeting.

Categorize Your Expenses

Divide your spending into categories such as housing, food, transportation, entertainment, savings, and debt repayment. This helps you understand which areas consume most of your budget.

Create a Budget Plan

Based on your tracked income and expenses, create a budget. Allocate a specific amount for each category, ensuring your expenses do not exceed your post tax income.

Choose a Budgeting Method

Decide on a budgeting method that works for you, such as the 50/20/20/10 rule (50% needs, 20% wants, 20% savings/debt repayment, 10% charitable giving), zero-based budgeting, or envelope system.

Use Budgeting Tools

Consider using budgeting apps or spreadsheets to simplify the process. Tools like Mint, YNAB (You Need A Budget), Every Dollar or Excel can help you stay organized.

Automate Savings and Payments

Set up automatic transfers to savings accounts and automate bill payments to ensure you save consistently and avoid late fees.

Monitor and Adjust

Regularly review your budget throughout each month to see if you’re sticking to it. Adjust your budget as needed based on changes in income or expenses.

Build an Emergency Fund

Allocate a portion of your budget towards savings to create an emergency fund. A starter emergency fund is around $1000. A fully funded emergency fund is at least least three to six months’ worth of living expenses.

Reduce Unnecessary Expenses

Identify areas where you can cut back. This might include dining out less, canceling subscriptions, or finding cheaper alternatives to things like housing, transportation and food.

Stay Disciplined

Stick to your budget and avoid impulse purchases. It’s important to maintain discipline to attain your financial goals.

Educate Yourself

Read books, attend workshops, or take courses on personal finance to improve your budgeting skills and understanding of financial management. Work with a wealth manager such as iWealth to help learn how to strive to maximize your assets and reduce your tax liabilities.

Have An Accountability Partner

Having an accountability partner is one of the most essential steps in the budgeting process. Not only can that person help you stick to your budget, but they can also help you feel confident about “splurge purchases” when the timing is right.

By following these steps, you can gain better control over your finances and work towards your financial goals. Do you have questions about what realistic budgeting looks like with your finances or how budgeting looks in retirement? As always, our iWealth team is here to guide you so that you can live your best life.