Facing the Truth and Creating a Budget

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An unfortunate reality is that many people do not have an accurate picture of their financial well-being. All too often it can be easy to fall victim to the mentality of not wanting to honestly analyze your financial decision-making and priorities and face where you may feel you’ve made a misstep. This leads to either avoiding the creation of a budget altogether or throwing one together half-heartedly.

These non-comprehensive budgets do not include all of the realistic expenses and expenditures one makes. By taking this tactic, these individuals really only hurt themselves. When creating an accurate assessment of a financial situation, it is better to develop an action plan that includes attainable goals. Creating a budget will provide the information needed to make better financial decisions now and in the future. Here is some helpful information that will help get you going down the path to better financial knowledge.

Starting A Budget

Before beginning creating a budget, you must decide on the purpose of the budget. Do you want to see how you are spending your money? Or are you looking to set financial planning goals? Sometimes, a common driving force to finally sit down and make a budget is the feeling to need to find a way to get out of debt, and having a budget down on paper will absolutely make that goal clearer and more attainable. No matter the purpose, as long as you are honestly including all the necessary information, you will have a better understanding of your financial position.

Start your budget by gathering all the information that needs to be included. Review your bank statements for at least the last six months to determine exactly how much money is coming in and where it is being spent. Using your bank statements as a guide will help you make sure you do not forget anything.

Identifying Expenses

After you gather a comprehensive list of expenses from bank statements, receipts, and other financial records, create a list of them in a spreadsheet or other program that easily allows you to make frequent updates. This list should show at least six months worth of payments. This type of listing will give you a good idea of any variances in your spending habits each month. Do not forget to include information regarding the interest rates on your credit cards and other accounts that have outstanding balances. This information can help later on when you are creating your goals and making a plan.

It would be best if you also grouped your expenses into recurring and one-time costs. Recurring expenses are those that happen every month, including:

  • Rent
  • Car payments
  • Insurance
  • Utility bills
  • Fuel
  • Groceries
  • Medical payments
  • School loans

Recurring expenses can either be a fixed amount like the rent or a variable amount like utilities. Keep that point in mind and plan accordingly.

Reviewing Income

To review income, gather all your pay stubs for at least the last six months. If you can, go back a full year. Be sure to include pay stubs from any side jobs and other forms of income you have. Just like with your expenses, review your bank statements for any additional deposits made to your account.

Create a list of your income, just like you did with your expenses. One group should include all of your recurring income, like your paychecks and the other should consist of any additional income that you do not regularly get like a tax refund. Separating your income in this manner allows you to see how much money you can expect to bring in every month and how much surplus you may get.

Creating a Spending Plan

After you finish your lists, it will be easy to see your cash flow. When you can see everything that is coming in and going out, you will easily be able to analyze your finances by merely looking at your recurring income and expenses. Then, add in your additional income and other costs and check to see if your income exceeds your expenses. If your expenses exceed your income, you either need to make adjustments to your spending or find another source of income. If you have excess income, think about your financial goals and how you want to achieve them. Then, make a plan and put it into action.

For more information on budgeting and financial planning, consider a consult.

 

 

 

 

Opinions expressed in the article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
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