For me, creating a budget is the first step to my financial independence plan. Knowing what income you are bringing in, how much you are spending, and how much you are saving is crucial to developing a plan to create a budget.
This is the time to get into the habit of spending way less than you make, so that you can create a comfortable gap between your income and your expenses. This gives you the freedom to take the jobs you want, develop your passion into a side hustle, travel the world if that is your goal, and so much more flexibility.
WHY HAVING A BUDGET IS IMPORTANT
Follow these steps to create a budget
STEP 1: START BY RECORDING YOUR INCOME. You can do this on a spreadsheet or write it in a notebook.
STEP 2. LIST ALL YOUR EXPENSES. Some common expenses you may have are clothing, games, personal care, concerts etc. Create two columns, and list your regular expenses (fixed expenses) in one column. Then list expenses that change (variable expenses) in another column. Some examples of regular expenses are monthly phone bill or monthly game subscription. Some examples of expenses that are not consistent are food, birthday gifts, movies, clothes, concert tickets. Don’t assign any money to your expenses yet.
STEP 3. SET YOUR SAVINGS GOAL. This is my favorite part, and this is where you want to be intentional. We all have different dreams and goals, so our saving goals will be different. Here are some saving strategies I have found effective:
- Automate your savings. This strategy truly works, and helps you avoid spending more money than you need to.
- Be Intentional. Set a minimum savings amount and stick with it as much as possible. If you get unexpected money, always assign a portion to your savings goal.
- Make yourself a priority. There is no better time than now to start your Financial Independence journey. Allocate at least 20 to 30% of your income to a retirement fund and make it a point to increase this percentage each year or whenever you make more income. Your savings rate will depend on how fast you want to reach financial freedom. Find out how here.
STEP 4. SELECT A BUDGETING TOOL. There are many tools that you can use to create a budget. My recommendation – always keep it simple. I have found that google spreadsheet is a great budgeting tool. If you want to get fancy, add a few visuals. I love using pie charts to show the breakdown of my budget. One of my teens likes good old notebook and pen for budgeting, and it works perfectly for her.
STEP 5. DEVELOP YOUR BUDGET. Now that you have everything laid out, it is time to develop your budget. Remember to Be Intentional, Give, and Save.
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