Why Create a Budgeting Plan?
“Oh here we go - Steve is gonna tell me stop drinking Starbucks or cancel my Netflix subscription or stop having a fun life...gosh Steve I don’t even know why I read your articles.”
Okay hold on, we will not tell you what to do but this article will provide a step by step guide on how to take control of your finances with a budgeting plan that matches your goals.
Budgeting is not about sucking the fun out of your life. As the famous Dave Ramsey says, “budgeting is about telling your money where to go instead of wondering where it went.”
At Call to Leap we're here to help you work your way towards financial freedom. So our budgeting plan is not about saving a few bucks every month. It’s about your long term goals and focusing on all the details of your finances.
How to make a Budgeting Plan
Okay, so the best way to budget is to be as thorough as possible about all of your finances. So first, let's write everything down and map out your plan. Take out a piece of paper and follow these steps.
Write down your goals. Maybe you want to pay off your parent’s mortgage, or maybe you want to achieve financial freedom in 7 years. Or maybe you just want to stop living paycheck to paycheck and be “cash flow positive” for once in your life.
Whatever your goals are, write them down. Be specific as possible. Write down your…
3 month Goals
1 year Goals
3 year Goals
5 year Goals
10 year Goals
And If you are young, don’t let that stop you from planning your future. The earlier you start taking control of your finances, the better!
When you’re writing down your goals, have fun with it. Create a road-map, draw pictures, and truly envision what you want to accomplish!
2. Income Assessment
Next, assess what your monthly after-tax income looks like. If your income fluctuates throughout the year use the average number of the past 3 months to give you the best idea.
With all of these steps, be sure that you are as detailed as possible. Account for side hustles and any extra forms of income.
Salary: 4,000 / month
Dividends: $50 / month
Side hustle: $200 / month
Total Monthly income: $4,250 / month
3. Expense Assessment
Okay, this is where the nitty-gritty details begin.
Go through your bank statements. Usually, these are accessible online through your bank.
When looking through your bank statements you may find old subscriptions that are no longer useful to you. You might even find some hidden fees that you didn’t even know you were paying every month. Use this opportunity to take time and cancel any unneeded monthly payments.
Once you have cut out any unnecessary recurring payments, check your bank statements for your recurring expenses and write them down. These will include things like your car payment, insurance, phone bill, utilities, rent, gas, Netflix subscription, etc.
Be as thorough as possible when you are writing everything down!
So when you write these down, it should look something like this:
Dining out: $100
Total: $ 2,150
What if your monthly expenses exceed your Income?
If your monthly expenses exceed your income then you are cash flow negative, which is the opposite of what you want and this is bad.
**Cue the “Oh no” song from TikTok**
If you are cash flow negative, then you have two options. And it is best to do these options simultaneously.
Increase your monthly income.
Decrease your monthly expenses.
If you need to increase your monthly income there are many different ways you can do this. You can start a side hustle, get a second job, or start a business. There are many different ways to do this. Remember, keep your goals in mind. Even if you were not cash flow negative, it's always a good idea to increase your monthly income through whatever way you choose.
If you want to decrease your monthly expenses you will need to assess what you can cut out of your monthly payments.