A budget can help you reach a financial goal by keeping track of what you earn and spend, understanding where all your money is going, and making smart decisions about how to use your money. That way, if you have a specific goal, you’ll have a better idea of how to achieve it. Here are five essential budget tips that can be your guide to a better future — financially, that is!
1. Track your income and expenses
First, it’s important to get a solid understanding of where you are financially. This includes keeping a record of your monthly income and expenses. Your income sources should include things like your paycheck and investments, along with any other revenue streams you may have. Your expenses, on the other hand, should include your monthly bills, groceries, car payments, and other everyday expenses. To monitor this information, you can track it using a spreadsheet on your computer, a budgeting app on your phone, or a notebook dedicated to your finances.
2. Set specific financial goals
After you've got a solid idea of how much you're earning and spending, you can now set specific financial goals for yourself. These could involve things like paying off high-interest debt, putting money aside for a down payment on a home or a car, saving up for an emergency fund, or planning for retirement. You can assign portions of your monthly paycheck toward each of your goals.
It's crucial to clearly define your objectives so that you can develop a budget that supports each of your financial goals. If there's been a recent change or milestone in your life that affects your goals, a financial advisor can help you redefine and fine-tune your budget.
3. Determine how to allocate your resources
Guided by your goals, you can start to plan out how to properly allocate your budget. This could mean cutting back on certain expenses or finding more ways to increase your income. If your goal is to save for retirement, for example, you might cut back on a monthly subscription and re-allocate those funds to a retirement account such as a 401(k) or Roth IRA. Alternatively, if your goal is to save for a down payment on a house, you could increase your income by picking up another part-time job, and then set aside any earned income from that job specifically for your down payment.
4. Prepare for the unexpected with an emergency fund
No matter how thorough your budget planning is, at some point, you’re bound to come across unforeseen expenses. As a result, it's important to be ready for these unexpected situations — meaning you should have an emergency fund in your pack pocket. Incorporating an emergency fund in your budget will make unexpected costs less stressful and better equip you to take on sudden financial emergencies.
5. Review and adjust your budget annually
Because your financial circumstances are bound to change over time, it's vital to consistently revisit your budget and reassess your financial goals at least once a year. By routinely reviewing your budget, you can ensure that you’re still steering toward your ideal financial future.
