Budgeting Basics - Las Vegas Edition
2024.6.22
Anyone looking to manage their finances effectively must be budgeting. Budgeting helps track income and expenses and set financial goals. It is also a very useful guide at making correct decisions about spending or saving money.
Understanding Your Income
Listing all your income sources is a first step in budgeting. Go through all of them and write down their total amount. But what income actually is? In short, all the money you make is considered as income. Let’s explain a bit more about what we may consider as income. Wages, salaries, Christmas bonuses, promotion bonuses, and any other regular earnings are all considered as income. For some individuals it might also include money from rental properties, investment returns, earnings from side hustle, or any other money flowing constantly in their hands. For businesses, income can include funds from sales, gained interest, operating income, etc…
Getting Ready
Tracking Your Expenses
Tracking your expenses means recording every dollar you spend over a set period of time. Most common period is a month. Expenses can be split into two categories, fixed and variable costs. Fixed expenses are those staying the same each month. Rent or mortgage payments, insurance premiums, loan repayments are some of the good examples of fixed expenses. Variable expenses change every month and include groceries, utilities, entertainment, dining out, etc… To help track your expenses you can use a spreadsheet or budgeting app. A simple notebook will work too. It is the key to be fair and honest about your spending habits and track them all.
Setting Financial Goals
Financial goals will be your motivator for handling money correctly. When setting goals, make them SMART: Specific, Measurable, Achievable, Relevant, and Time-bound. For example, instead of saying, “I want to save money,” say, “I want to save $5,000 for a down payment on a car within the next 12 months.” Goals can be long term or short term like> buying a house or going for dinner in a new restaurant in town.
Creating a Budget Plan
With accomplishing all three previous tasks you are ready to create a budget plan. Start with subtraction of fixed expenses from total income. What is left is what is available to you. You must distribute the remaining amount between variable expenses and achieving your financial goals. Do not forget to prioritize savings and investing! Try following the 50/30/20 rule: 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment.
Monitoring and Adjusting Your Budget
Budget requires regular monitoring and adjustments. Review your budget monthly to see if you are sticking to it and to make any necessary changes. If you find you are consistently overspending in a particular category, you may need to adjust your budget or re-evaluate your spending habits. Life changes, such as a new job, a move, or a major purchase, can also impact your budget. Be flexible and willing to adjust your budget as your circumstances change.
Using Tools and Resources
Budgeting apps like Mint, YNAB (You Need A Budget), and Personal Capital can automate tracking and provide insights into your spending patterns. Online calculators can help you estimate expenses and savings needed for future goals. For businesses, a good accounting software can simplify income and expense tracking, invoicing, and financial reporting.
Benefits of Budgeting
Budgeting helps you live within your means, avoid unnecessary debt, and save for future needs and emergencies. It provides a sense of control over your finances and can reduce financial stress. For businesses, budgeting is important for maintaining profitability, managing cash flow, and planning for growth.
Common Budgeting Challenges and Solutions
Many people face challenges when starting with budgeting. Common issues include irregular income, unexpected expenses, and difficulty sticking to a budget. For irregular income, consider creating a base budget with your minimum expected income and plan for any additional income as a bonus. For unexpected expenses, establish an emergency fund to cover unforeseen costs. To stick to your budget, regularly review your progress, celebrate small wins, and stay motivated by keeping your financial goals in mind.
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