Budgets
I can’t stress enough the importance of doing a monthly budget, regardless of your income, and also computing your net worth month over month. How else do you know if you’re on track for long term goals or just want to make sure you’re not spending more than you’re bringing in?
We budget everything each month, and I do mean everything. With things are as tight as they are today, we need to stay on track and make sure we’re not increasing our debt. Every dollar counts!
Budgets can be pretty simple or really detailed. The good thing is it’s easy to start out and add more detail month to month if you want. If you have Excel, a little work up front will help make putting a budget together pretty easy.
In its simplest form a budget is a forecast. You calculate your income and subtract all expenses. Bingo, you’re done. Hopefully there’s a positive number at the end. If it’s negative, you’re spending more than you’re bringing in and your debt will grow. If you want to stay out or get out of debt, then changes need to be made.
Budget example:
Total Income = $1000
Expenses
- Rent $500
- Electric $75
- Cable $82
- Gas $65
Total Expenses = $722
Balance = $278
Not sure where you stand each month with your expenses? An easy way to figure it out is to use a credit card for the month to capture all expenses. Of course, as long as you can pay it off right away. No need to unnecessarily carry a balance and get hit with finance charges.
A budget helps with planning for one-time expenses too. A family vacation on the horizon? Maybe driving school for a new driver? Plugging that into your budget will help ensure you can cover these one-time expenses.
Net Worth
You may be asking yourself, why should I be interested in my net worth? Well, a couple of good reasons. Maybe you’ll be looking to get a loan for a car or a mortgage or have long term goals to retire someday and not work as much or at all. Tracking your net worth will tell you how well you’re doing. It’s an eye opening experience tracking your net worth month over month. Sometimes it’s not pretty, but it’s good to know where you stand.
Where a budget is somewhat of a forecast, net worth is actual. In short, it’s your assets minus your debts.
Net Worth example:
Assets
- Home $150,000
- Retirement $12,500
- Savings $3,000
- Checking $1,250
Total Assets = $166,750
Debts
- Mortgage $12,2000
- Credit Cards $2,200
- School Loan $23,000
- Auto Loan $9,800
Total Debts = $157,000
Net Worth (Assets – Debts) = $9,750
Even if your net worth isn’t a positive number. Don’t stress. You’re taking the first step in fixing it just by tracking your net worth. Now you can put a plan in action to turn it around!
In Conclusion
I challenge you to do a budget if you’re not doing one already, plan one out just a month or two. Track your expenses, this is huge. I have friends who did this and were amazed to find out how much they spend eating out. They weren’t tracking it before and now realize how quickly it adds up.
At the end of the month, update your budget with actual ending numbers so you can see if your budget was in line. Then do a net worth calculation. Month after month you’ll see you become somewhat addicted in finding out if you’ve made progress. And you can measure any changes you’ve made to see the impact.
We’re not financial experts, just sharing some things that have helped us out. But we’re willing to help. If you have questions, feel free to shoot us an email via the CONTACT US link and we’re more than happy to give our $.02 🙂
