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Now is the time to review your 2020 budget
If you want your financial goals to become reality, a sound budget can get you there. By drawing up a spending plan you can keep/climb out of debt, save for vacation, put your children through college and even feel excited about retirement.
How to create a budget?
Step 1: Note your net income
- Identify your take home pay. Remember to subtract from gross pay all your deductions, such as social security, income tax and retirement contributions.
Step 2: Track your spending
- Categorize transactions from your bank or credit card statement to see what you spend your money on. You should also create a list of fixed expenses (i.e. Mortgage payment) and a list of variable expenses (i.e. Entertainment).
Step 3: Set your goals
- Set short-term goals (i.e. Pay off the Discover card within a year) and long-term goals (i.e. Save for Billy’s tuition). Do this before you review the tracking you did in step 2.
Step 4: Make a plan
- Separate your variable and fixed expenses list from step 2, into needs and wants. Typically, your variable expenses consist of more wants than your fixed expenses list. But you can think of ideas on how to cut back on your needs, both fixed and variable. (i.e. You need internet, but do you need the highest speed offered?)
Step 5: Adjust your habits if necessary
- Complete your budget by looking for spending cuts, starting with the “want-to-have” expenses. Adjust as necessary to meet your goals. Keep in mind, sometimes our initial “need-to-have” list may include items that are “just hard to part with”. There IS wiggle room in both the wants AND the needs lists.
Step 6: Keep checking in
- Review your budget on a regular basis to stay on track!