Creating a monthly budget was hands down the most important step for me in becoming and remaining financially stable. It allowed me to effectively manage the income I received each month by allocating 100% of it to that month’s expenses and financial goals before I even had the chance to blow it! Because I used each month’s income for that month’s expenses, I was able to leave the money I saved during the previous month in the bank.
Once I realized that the key to budgeting success is managing your money on a month-by-month basis, I mastered my budget!
I must admit, it took a few months of getting use to but afterwhile, I was budgeting like a financial guru before I even became one!
Understanding the following aspects of monthly budgeting will ensure that you too will master the art of it – quickly!
Redefine the Term “Budget”
Before you go any further, I would like to shift your mindset a little more in regards to budgeting. A monthly budget is a financial tool that helps you control and create the lifestyle you desire. Nothing more. Nothing less. So when you hear the word “budget”, mentally categorize it as another planning tool. I want you to be as excited to plan how you will spend your money each month just like you are excited to plan out your weeks in your day planner or Google calendar.
Vision board parties are very popular because the idea of creating a tangible visual of your desired lifestyle seems so sexy. However, you have to go a step further and create a monthly budget that helps you become financially stable and then maximize your income to support your desired lifestyle.
Zero-Based Budgeting is Best!
Over the last 7 years, I can confidently say that I have used every budget template and method available! The only one that my clients and I absolutely swear by is a zero-based budget. It is a unique budgeting format because it requires you to allocate 100% of your income to your monthly expenses each month.
Utilizing this technique, your take-home pay minus your expenses will always equal zero. If you earn $2,500 a month, you will place all $2,500 dollars into your monthly expense categories. You can think of the zero to mean you have zero dollars to blow each month because every dollar that you receive has a job to do!
The Benefits of Budgeting Monthly
You can clearly see your monthly income and expenses. You may be aware of how much you earn, but not how much you are spending within a month. This method allows you to track everything you will spend, down to the dollar, during the month.
It enables you to contribute to your savings account regularly. Your monthly budget should include a contribution to your emergency fund savings account, which will enable you to reach your savings goals.
This budget increases clarity and decreases your stress levels because there will be no financial surprises. By allocating money to your monthly expenses AND saving for unexpected events, you eliminate the worry associated with wondering if you have enough money to cover your expenses for the month.
What Budgeting Is Not
I often see people confuse budgeting with tracking their expenses. These are not the same thing. If you are writing down purchases and paid bills, you are tracking your expenses, not budgeting. You are not controlling your money because you are spending first and thinking second.
For example, if you go to the mall, purchase a pair of shoes, and go home and write it down, you are merely tracking your expenses. There is no way of knowing if you will run out of money at the end of the month because you don’t have a plan for the entire month. When you budget, you look ahead. You see how much money you will have, what you will need to pay for, and then you sit down to ensure the money you have covers all of your expenses.
Regardless of your income level or financial situation, I encourage you to create a budget because controlling your money is critical to financial success!
One week before the end of the month, open The Ultimate Financial Planner and create the next month’s budget. Keep your budget in a place that is easily accessible to remind yourself of what you have allotted to each category to prevent overspending.
Review your budget at least once a week. I keep my copy of The Ultimate Financial Planner on my desk in my home office.
Tara’s Tip: Write in pencil. It takes the average person, including myself, approximately three months to really master the art of budgeting. And there will be times when you will revise or adjust categories in your budget.
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