Handling expenses is a stressful thing, especially if you are budgeting non-existent money. Relate to that? Well, welcome to this kind of life. But did you know that there are ways you can leave this setup?
If you live paycheck to paycheck, it will help if you start from zero and build a budget plan again. Maybe through this, you can finally allow some of that paycheck to cover a few more things, perhaps some wants or something related to your passion.
If your previous setup did not work, read on to find some things you can change.
Observe Your Expenses for One Month
This is step one. You don’t have to change anything with the way you have been living. You just need to add a tracker.
This is the experiment month. Get a notebook or even just a sheet of paper; just make sure you don’t lose it. Your phone’s notes are fine, too.
The task is to track every single expense that you make for the next 30 days. Every single expense includes that three-dollar coffee you get every afternoon. Basically, every time you take out cash from your wallet or make a purchase online or with your card, list it down.
Make categories: utilities, groceries, food, personal expense, insurance, etc. The utilities will cover your electric, water, and internet bills. Rent is included if you do rent. All expenses you make on takeouts and delivery, list them under food. Everything you need at home should fall under the grocery category, which includes both kitchen supplies and toiletries.
At the end of 30 days, compute how much you spend on each category.
Define Your Financial Goals
Living in the moment is cool and all, but not putting away some funds for emergency purposes can be disastrous down the road. What if you suddenly need money for repairs because a thunderstorm broke your windows or your air conditioning unit suddenly broke down? When will you pay for the services of an HVAC expert to get your air conditioning unit fixed? It’s a whole other story if you get sick.
This is why you are redoing your budget plan. You need to define your financial goals, at least for the following year. It doesn’t even have to be long-term right now.
In the next 12 months or so, do you want to move out eventually? How secure is your job? Is there no risk of you being jobless? Do you want to travel?
Calculate how much you need for an emergency fund. Also, if you have any plans to travel or do anything that requires money, list it down. Be as specific as you can.
For example, you want to travel around Europe for two weeks next year. If it costs you around $4,000, divide that amount by the months left before that supposed trip happens. Or, it could be just plain savings. How much extra money do you want to have by the end of next year?
Create Your New Budget
Based on the data you gathered over 30 days, look at how much you need to sustain your current lifestyle every month. And then, look at the numbers from step 2. Add them together. Compare the result to the paycheck you receive each month. Does your salary cover everything?
If not, here is where the negotiation happens. Among the things that you spent on in the last 30 days, what is the least important? Deduct everything you can live without. Or maybe you don’t have to remove it altogether; just do it less frequently. Maybe takeouts and coffee?
Finalize the budget you need to allocate for every category. The numbers don’t have to be exact; it actually helps to set a range for every category. With your utilities, the amount can change each month, but at least now, you get a sense of how much you pay for electricity and water every month.
The same goes with your budget for food since you are not going to eat the same food for the following months. Set a minimum and a maximum. Try your best never to exceed the maximum amount, but you can always go below the minimum. You can count the excess as extra savings.
This is the most basic way of managing your finances. All you need is paper, a pen, and the willingness to let go of some things. You have to understand first how much your need to survive every month. Then you also have to compute how much you need to live a worry-free life.