Okay. Now that you know your starting point, your net worth that is, it’s time for you to make plans. It’s the time for you to set goals, think of ways how to achieve them and it’s definitely the time for you to TAKE ACTION.
Moving on… now that you know that you only have a measly $105.62 savings at the bank, maybe your goal (and I hope it should be), is to save up at least one month of emergency fund for a starter and gradually augment that later. Now that you know that you owe $3521.56 on your credit cards, maybe your goal (and I hope it should be) is to pay it down… or better yet, pay it off. I could go on and on but I think you got the idea.
Are you with me so far?
As for the means of achieving your financial goals, let me tell you, there are lots and tons and many and plenty out there.
One of the most powerful tool in straightening up your finances is BUDGETING! I know that for some, when they hear the word budget, they feel icky about it. Well, I don’t blame anybody for that because I myself felt bad when I started budgeting. It’s like why do you have to restrict yourself when you can buy everything with a credit card? Right now. Right?
I really believe that before you can budget, you need to look inside yourself. You need to be honest with yourself. It sounds cliché but it’s true. Budgeting comes from within. It is psychological and emotional. It is knowing about what you NEED and what you WANT. It is about setting your priorities straight…knowing what is IMPORTANT. Actual budgeting is easy but the mental and emotional preparation is hard. This preparation will of course vary from person to person depending on their level of determination, motivation and willingness to change. It will take time and effort. The question is, are you ready?
Budgeting is knowing how much money is “coming in” and how much money is “going out”. And then thinking of the best way to allocate that money. Plain and simple.
Money “coming in” ,of course, are your income (wages, interests, royalties, income from rental properties etc) and money “going out” are your expenses (food, savings, rent/mortgage, utilities, credit cards, loans, clothing, gasoline, cellphone, entertainment, miscellaneous). Write all these down on a sheet of paper starting with your monthly income on top and your monthly expenses at the bottom. Total the income and total the expenses and then subtract the total expenses from the total income.
Are you boooored yet?
For simplicity’s sake, let’s say that your monthly take home pay is $4000. Now, you need to budget that $4000 to cover all your expenses for the month. For example, you can put $1000 on food, $1000 on savings, $1000 on rent and utilities, $500 for your debt and probably $500 for discretionary spending.
The key is, which is also the cardinal rule of personal finance, live within your means. Your expenses should not exceed your income. Your budget can help you achieve your financial goals and it can provide you a clearer picture of what you can and you cannot do with your money. LET’S BUDGET!