Following a budget is essential to financial health, but creating one and sticking to it can be challenging.
Why Budget?
Whether you are working toward business, fitness, or financial goals, what matters is creating a well-designed plan to move from where you are today to where you want to be. A budget is one of the first building blocks of a sound financial plan.
A budget shows how much income comes in and how much you plan to spend. You may have limited control over household income, but you can control much of the cash flowing out.
Create a budget by:
- Recording spending
- Monitoring spending
- Prioritizing spending categories
Then adjust spending based on what the records reveal.
What Matters Most
Many families work toward savings and investing while paying down debt.
- First, build an emergency fund with at least three months of essential expenses, and possibly more depending on employment and other circumstances.
- Second, pay off unsecured debt such as credit cards and unsecured credit lines, generally starting with the highest interest rate.
- Set aside money for goals such as retirement, children’s education, a home or renovation, vacations, vehicles, and living life on purpose.
A good financial advisor can help prioritize goals according to your financial situation, age, and other factors.
Follow the Money
Track spending for at least a month using an app or paper and pencil. Assign every outflow to a category. Look for surprises, overspending, and opportunities to reduce costs.
What a Well-Designed Plan Can Provide
- A road toward financial success
- Lower stress
- Better sleep
- More from life
- The ability to live on your terms
- The ability to make a difference
A budget is much more than numbers.
-Paul R. Rossi, CFA