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Building a Better Budget

Think fast – how much money do you spend each month on food and drinks?

If you responded “$257.23” then you can skip this blog post. In fact, you could probably write it! If you responded more like “…um, I gotta go organize my sock drawer” you might want to stick around.

At Xceed, we talk a lot about budgeting because it really is the key to achieving all of your financial goals. Basically, budgeting means analyzing the money you have coming in and then developing a reasonable and goal-oriented plan for the money that goes out. Here are the four basic steps:

  1.      Track your expenses for a full month. Before you create a spending plan, you need to know where you stand. Using an expense tracking app, or putting all of your expenses on a credit card, can help ensure you include everything. For intermittent or variable costs, like car insurance, determine an average by totaling what something typically costs for the year, and then dividing that amount by 12 months.
  2.      Account for all of your income. Don’t forget to include bonuses or income from a side hustle, but don’t overestimate – it’s always better to have a windfall than a shortfall on income.
  3.      Create a proposed spending plan. Using your actual expenses as a guide, write down what you want to spend on each line item (e.g., housing, utilities, entertainment) each month, including money you want to put toward financial goals like saving for retirement, establishing an emergency fund, or buying a new car.
  4.      Subtract your proposed spending from your current income. Voila! That’s your bottom line. If it’s a positive number, break out the happy dance! You’ve got more cash to put toward your financial goals. If it’s a negative number, though, you’re going to have to examine your spending. See what can be reduced, postponed, substituted or cut entirely from your budget.

Remember – whether you make $20,000 a year or $200,000 a year – your financial security depends on living within your means, so be sure that your expenses never exceed your income.

Want to know more about budgeting? Check out my podcast!

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