A budget is the first step to financial wellness. How to get started
Taiwanese man looking at household budget and sorting out bills on his laptop in his cozy living room
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When trying to take control of your finances, most financial advisors start with one simple step: drawing up a budget.
The coronavirus pandemic and the resulting economic recession and recovery have made a budget more important to many Americans. About 80% of respondents in 2021 have a budget, according to Debt.com, up 12% from 2019.
Having a budget or spending plan is one of the first steps towards financial health as it acts as a guide to your money.
“To me, budgeting is the most important part of getting you from Finance A to Finance B,” said Frederick Standfield, certified financial planner and founder of Lifewater Wealth Management in Atlanta. “It will influence some critical decisions.”
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According to Tania Brown, CFP and coach at SaverLife, a nonprofit focused on helping low-income Americans save, it’s important that everyone has a budget no matter how much money they make.
“A budget tells your money where to go and what to do so you can live the life you want,” she said. “The less money you have, the more important it is that you prioritize where that money goes.”
How to create a budget
The first step in creating a solid budget is to define your financial goals, experts say. Financial advisors recommend different ways of doing this, such as thinking about your big goals or identifying your core values.
Once you have a clear picture of what you want to achieve, you need to take a financial inventory of your location, including income, expenses, and debts. Then you take your monthly salary and break it down between your essential expenses first, then your financial goals. If you have any money left, you can use it to spend in more fun categories, such as spending money. B. Traveling or eating out.
If you don’t have enough income to meet all of your wants and needs and save for long-term goals, you may need to cut your expenses or consider a longer period of time to save. These decisions will help shape your financial plan.
“Making conscious decisions about how much to spend, save, and what to cut or give up offers tremendous direction,” said Jerel Butler, CFP and founder of Millennial Financial Solutions in New Orleans.
Once you’ve set a budget, the next part is automating parts that you can, such as: B. Pay bills and save, and track your expenses.
There are many ways to do this, from using a simple spreadsheet to using an app like Mint, Personal Capital, or You Need a Budget (YNAB). The important thing is to find the money tracking method that works best for you so that you will keep using it.
Prepare for success
Certainly, some people will struggle to stay within their budget, especially at the beginning. There are a few things that can help you get back on track.
The first could change your attitude towards budgeting in general, according to Julie Quick, a CFP and founder of Cultivate Financial Wellness in White Lake, Michigan. Instead of using the word “budget” which people associate with the financial version of a diet, she helps her clients develop a spending plan.
The idea is the same – it’s a plan for how you allocate and spend money – but the difference in vocabulary makes people feel like they are in control rather than limiting themselves.
“I tell all my clients, ‘I’m not going to say what you can and can’t spend money on, only you can do it,'” she said. “But it’s about understanding what’s important to you and basing your dollars accordingly.”
You can also try a new way of budgeting or tracking your expenses, Brown said. For example, if using an app that keeps track of your expenses is too stressful, you can do a monthly check-in with your own spreadsheets.
Experts also say that a solid budget usually takes a few months to perfect because people usually forget some expenses first or overestimate their savings.
To counter this, Brown suggests indulging in plenty of grace at the beginning and preparing for success for at least the first few months by choosing achievable goals.
For example, if someone wants to save $ 100 a month, she recommends starting with $ 50. When you meet or exceed a goal, it encourages you to keep going, she said.
When should you consult a professional?
Lots of people can set and manage a budget on their own, but if after a few months you really have problems, it may be time to seek advice from a professional.
Those who need help with budgeting basics or have a spending problem may want to work with a financial advisor, coach, or even a financial therapist. If you’re looking to invest long-term or need help with goals like buying a home, retiring, or saving up for college, it’s a good idea to seek help from a financial advisor.
Couples in particular may want to work with an expert to get the help of an objective third party in achieving their goals, said Kevin Lao, a CFP and founder of Imagine Financial Security in St. Augustine, Florida.
“They could have different philosophies or have a stronger personality than the other,” he said. “I see a lot of value in sitting down and talking to married couples about their goals.”
A professional will also help with one of the most important parts of budgeting – just getting started.
“If you don’t take the first step and start, you can never get there,” said Standfield. “So just start.”
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