We’ve all heard it – Keeping track of how much money you make and spend is one of the best habits you can have. To be honest, I struggle with this. For some this is easy, for me it is HARD! I know it will help to create and sustain a healthy relationship with money, and I know it can improve my life in significant ways. So, let’s see if learning about personal finance doesn't have to be difficult, and budgeting isn't necessarily restrictive. Read on to learn some simple tips to get in the habit of keeping a budget and the benefits it can offer. Remember we are in this for the long haul, the lifestyle change.
Consider Your Reasons
First, you'll want to take time to think about the reasons you wish to maintain a budget. It may be to lower your debts, to save for a big expense, or simply to make your life less stressful. Knowing why you want to manage your money will help you to prioritize and stay on track.
Determine How Much Comes In
Next, it's time to determine how much money is coming in each month. For most entrepreneurs, this amount may vary. Take a look at your earnings over the past six months to a year and then average them. You can use this number as a baseline for what you bring in each month or you may opt to go with a conservative estimate by choosing the lowest amount you made. The choice is yours, but you should have a good general idea of what you have to work with.
Figure Out Your Debts
You need to know what your minimum debts are each month so you can determine how much is left over. Add up the minimum payments on each of your regular recurring debts. Start with your savings – Pay yourself first! Then move on to student loans, credit cards, mortgage or rent, utilities, car loan, gas, and any other payments you owe each month. The total will be your average monthly expenses. It can also help to make categories for each type of expensive, such as household, transportation, incidentals, etc. This can make tracking easier.
Take a Look at Your Bottom Line
You can tally everything up by hand or enter it into a database. Check out the numbers and pay specific attention to your bottom line. This is how much you have left to work with after your basic recurring necessities are taken care of. If you have a cushion, this will inform you as to your ability to save more or invest. You may notice, however, that you're barely getting by or that you have a deficit. This means you'll want to look at your expenditures and make some adjustments. Finding a way to add income with a new campaign, new products/services, or even a part-time gig
The Bottom Line
Clearly, this is a very basic summary of what it means to keep a budget. However, knowing your bottom line is key to any future financial decisions you make and can be quite an eye opener if you've never kept a budget before. To continue budgeting on a regular basis for both your business and your personal life, apply the principles from Profit First by Mike Michalowicz. We use these principles in our business and in our clients' businesses. I have also started implementing them in my personal household budget. It is a struggle, but I am making progress. And, it’s worth it.
