Money! Money! Money!
Some call it a necessary evil, true it can cause much heartache and worries, but it is essential in day to day life so instead of fearing it, the best thing to do is understand it train yourself to use it wisely and then you can find a way to make it work for you.
I can see it now…Financial freedom!
Financial freedom is so much more than just having money. It allows the freedom to be who you are and do what you want.
It enables the freedom to be live how you want to live without financial constraint, the option to move freely from country to country, if you so please.
Do you know where your money is going?
Creating a working budget will take you a step closer to financial freedom.
Having a budget to keep track of all your incomings and outgoings means that you are:
- less likely to get into debt
- more prepared to deal with unexpected costs
- able to improve your credit rating
- identify the areas that you can save money
- able to make saving plans
1. Calculate your monthly income
List all your income streams. Where does your money come from and how often?
2. Calculate all your essential fixed expenses.
Next, make a complete list of your monthly expenses. This may include bills that fluctuate from month to month, for these use an average figure that can be updated to the actual figure when it’s time to revisit your figures at the end of the month.
Find out how much you spending on:
- Household bills
- Living costs
- Travel costs
- Family and friends
If you’re not sure of the numbers, check past bank statements. I know for some it may be a scary thought.
3. Calculate your discretionary expenses
Next step, add up your expenses that aren’t essential. Things like:
- Eating out
These are costs that are usually more determined on what you can afford and usually the first to go when things get tight..
4. Income minus expenses
Moment of truth!
Subtract your expenses from your income total to find out just how your situation is looking.
5. Good, Bad or Ugly?
Now if you are fortunate enough to have a good amount left over after all your expenses, that’s brilliant. You are bringing in enough to cover your expenses. Now don’t run off and blow those extra pounds every month. Perhaps bump up your debt payments to get rid of them quicker, fill your emergency fund quicker or change that 3* holiday to a 5* one next year.
If, however, like many you realise you are in fact spending more than you bring in, things may not feel quite so great and promising. All is not lost, just check your expenses and find where you can and need to cut back.
A good place to start is by keeping a spending diary to track your day-to-day spending. Keep an eye on debit card purchases, the little transactions add up.
I get it, the figure may have even shocked you, but don’t be disheartened. There is a way out of financial struggle with financial discipline!
6. Make some financial goals
Making financial goals are important so you can plan and prioritise what you are going to do with your spare money and how you are going to achieve Financial Freedom.
Financial goal examples:
- Get out of debt
- Build emergency fund
- Build holiday fund
- Save for home deposit
- Save for retirement
When you’ve decided on your goals, these can be added to your expenses. Getting out of high interest debt should be a priority and then perhaps building an emergency fund; 3 months’ worth of expenses is the usual recommended amount.
Even if you aren’t able to save much at first, start with a small amount as every little counts.
7. Monitor and follow your budget
Good, bad or ugly, you have seen the reality of your finances and must work hard to improve your situation by maintaining your budget.
Adopt new habits and stick to them. If you have a family, get them involved too. Teaching your children good money managing skills early will prepare them for managing their money later in life.
Keep on top of your budget and make amendments if and when you need to. Some more ideas to try:
- Weekly budget checks
- Use a bill calendar
- Use envelope system
- Make a change jar
- Increase your income
- Switch energy suppliers
Well, I hope you have found this post helpful and that financial freedom is on the horizon for both you and I.
Are you good at sticking to a budget?
What challenges do you have with money?
Do you have any budgeting tips to share that help you?