Financial planning is an important part of making the most of your money and being able to obtain your financial goals.
One of the most important tools in your financial planning is a monthly budget. First, write down the income you expect to bring in for the month. This can include salary, child support and any other income you regularly receive. Next add up your fixed expenses such as rent payment or mortgage payment, utilities, child care expenses, food and other expenses you must pay each month. This may also include payments towards your debt such as car payments or credit card debt. Subtract the fixed expenses from your income. The remaining amount is what is left over for other spending or saving.
Some experts suggest to “pay yourself first”. Many people wait until they have paid other bills to put money into savings. By paying yourself first, you set an amount you want to save each month and subtract that amount from your income before paying your other bills.
To determine how much to budget for certain categories such as groceries, dining out, clothing and entertainment, track your spending. For at least a week or a month, keep track of everything you spend money on. At the end of the week or month look at your spending to see where your money is going. This is also a good opportunity to see if there are expenses you can cut back on or cut out completely.
If you have difficulty staying on budget, one system is the envelope system. Once you determine the amount you are allocating to certain categories, label a regular size envelop for each of these categories. On payday or whatever date works for you, take out cash for each of these categories and put the cash in each envelope. Once the envelope is empty, you are done spending in that category until the next payment period.
By knowing how much money is coming in the going out, it is easier to live within or below your means. Many people get into the habit of living beyond their means, or spending more money each month that they bring in. If you are living beyond your means, you can quickly get into a financial hole that can be difficult to dig yourself out of.
Money is a very important part of many aspects of our lives, that means financial planning is very important to obtain your financial goals.