Finances can be a significant source of stress in your life, especially if you do not have a clear picture of your income and expenses.
In a recent survey conducted by CFP Board, 77 percent of Americans said they find it easy to spend money, but nearly 60 percent do not track their spending. More than one-third of those surveyed acknowledge that they spend more than they save.
A well-crafted budget provides financial clarity, and is an essential tool for managing your finances. Outlining your spending for specific household needs over a period of time can give you more control over your money and better position you to meet financial goals.
In order to create an effective budget, you must first gain an accurate understanding of your cash flow, or the amount of money that flows in and out of your household. Start by determining your monthly income, then calculate the amount you spend on essential expenses every month. Any income remaining after your expenses are paid can be allocated for saving, investing or recreational spending. A Certified Financial Planner (CFP) professional can help you make these calculations and provide guidance on how to use leftover income.
Here are four recommendations for evaluating cash flow and getting started on your budget:
1. Think about your "money rules." Do your spending and savings decisions vary based on the source of income? You might use income from a work bonus differently than your regular work pay, for example. If there is a difference, how does each decision support your monthly budget needs and long-range financial priorities?
2. Be sure to account for all payment methods: checks, cash, credit and debit cards, automatic payroll deposits and deductions, online payments and other payment accounts such as PayPal, Zelle or Venmo. Taking the time to collect all the statements necessary to create a true picture of existing money flows is imperative to taking financial control.
3. Reconsider automated purchases. Keeping credit card information on file with online retailers such as Amazon and iTunes makes shopping quick and painless, but it also makes it easier to overspend. Taking the time to enter payment information manually means more time to consider a purchase before completing your order.
4. Think of your budget as a "spending and saving" plan. Consider including a line item for regular savings as a cash expense.
Budgeting can be tricky, and it is only one piece of the financial puzzle. Consider partnering with a financial planner to create a comprehensive and personalized financial plan that includes a household budget.