What do you think of when you hear the word “budget”? Most probably think about restricting your spending. It carries a negative connotation. The word “budget” seems to suck the fun out of things, right? When you think about traveling on a budget, you tend to think about staying hotel that isn’t as nice, eating at cheap restaurants, or going somewhere inexpensive. Buying a car on a budget usually leads you to believe you are buying an older car with higher mileage. Planning a wedding on a budget, makes you think that you are cutting back on what you really want. I think about a budget differently. It doesn’t have to mean cheap or cut-rate. A budget, by definition, is simply a plan for your money. Stop thinking about a budget as something negative. Having a proper budget, a plan to guide you, should be freeing. It can allow you to not worry about your money and spend more time and brain power on things that you are more passionate about.
Where to start
Start to empower yourself by truly understanding your income. What’s your gross income? How much is going out to taxes? You may be taking out too much for taxes, hoping you will get a refund when you file. I would prefer you get closer to what you really owe, putting more money in pocket each paycheck that you can put to work for you. Are you contributing to a company retirement plan? By the way, if you aren’t, you should be. What’s left as a net income once everything is taken out of your gross income that is actually going into your checking account. From there, we can start to determine where your money should be going.
Set your priorities
We talk about goals all the time. How do you set proper goals? If you aren’t sure where look when setting goals, dive into your priorities. What is important to you in your life? For some, their home is the number one priority. A bigger, nicer home could be a goal for them to start working their budget around. For others, a big house may not be as important. Maybe you really love to travel. Let’s set your goals around having more money to travel and you may look for a smaller home with less maintenance. All these priorities tie into designing your budget. Determine what’s important to you, keep focused on your goals and not what everyone else is doing, then begin to lay out your budget to accommodate those goals.
Putting your money to work
Now that you know what’s important to you, how do you use your income to make those things happen? Take advantage of the tools available to you like bank savings, brokerage accounts, credit cards, and retirement accounts. Most people tend to keep too much cash in a bank savings or checking account. Most advisors would recommend you have an emergency fund of three to six months of expenses saved up. Does that mean it needs to all be cash in a savings account? Not necessarily. You could consider looking for generally safer investments, taking advantage of a brokerage account, to help you grow those dollars while keeping them readily available if you need access to them. Now, there is a risk in putting those dollars in the market, but if you aren’t trying to hit home runs on individual stocks, you can find some less risky investments to take advantage of. You may also use these accounts to try to grow dollars you won’t need for longer periods of time. Have a trip you are planning a few years from now? You have some time to put that money to work for you rather than just stashing away cash.
Credit cards can also be a good tool. Not only can they help you build credit, they also can provide rewards like cash back or travel points. Use these cards for items you know you are going to pay every month, like your groceries or gas. While you would normally just be spending those dollars, at least you are earning something along the way with the proper credit card use, that can benefit you.
Making sure you are taking advantage of the proper retirement accounts can not only set you up for the future, but they can also benefit you now. Taking advantage of company plans can give you access to free money matches from your employer and lower your income amount for taxes. Roth IRAs can allow you to save for your future, while also being something you can have access to in case of emergencies.
Don’t think of a budget as a no-fun, restrictive idea that will lock you down. Start to utilize a budget to empower yourself to accomplish the goals you have for your present and future self. It’s not always easy to establish, so ask for help from a professional to lay out a budget that will be best suited for you.