How to have a stress free budget in under 10 minutes
To some people, budgeting could be something one would look forward to at the end of the month or week when income is paid and expenses are manageable where the remaining money is left to spend and enjoy or it could be a daunting task for some. Especially if they were to be hiding their credit card statements under their bed or in the drawer or maybe it could be seen as a waste of time as long as everything gets paid on time and no one gets hurt. But did you know that budgeting can be fun and having a budget actually helps to reduce your financial burdens and stress? What if I told you that having a budget allows you to create a spending plan for your money? It ensures that you will always have enough money for the things you need and to finance the things that you enjoy and are important to you like traveling or having a dream wedding.
Here are 4 easy steps to create one on a spreadsheet as recommended by Tori. Oh! BTW, it's free! 😉 It’s important that budgeting should be done at least once a month so you’re able to keep track of your finances from time to time.
Step 1: Audit
The first and most crucial step to budgeting is to look at your credit card statements. Yes, I know it can be painful to look at it but before you do, go get a glass of wine or get comfy in your PJs and put yourself in a very comfortable state so it's easy for you not to avoid it.
List out all of your credit card expenses on your spreadsheet. Take a look at your statements — audit them. Ensure that there are no double charges or fraudulent charges. It could also be a useful step to remind you of the purchases you had made which you could have forgotten. It’s also a good time to look through your expenses to see if there are any subscriptions you would want to cancel in which you don’t find useful or have not used their services for a long time. The best guideline for me is if I have not been using a subscription service for the past 3 months then I would need to cancel it.
Besides, looking at your credit card statements gives you an indication of your likes and dislikes. For example, if you don’t like going to the gym but had just signed up for a gym membership thinking that doing so will help you get your ass to the gym, and if in three months you’ve not been utilizing the gym you’ve signed up for, I’d really suggest to cancel it. Because it's likely that you won’t be utilizing it for the rest of the year.
Another example I can give about my own audit of my likes and dislikes is that I realized that I tend to have frequent payments made to skincare products which I find beneficial at a reasonable price. So, I decided to sign up for a credit card that provides me with the highest cashback for purchasing skincare products online while sticking to a brand I like such as Innisfree which gives points for the benefit of discounts for every purchase I made and for providing them bottles I’ve used up for recycling. Double cash back! Other perks such as asking for free samples are useful tips for most of the ladies out there.
After listing out all your expenses from your credit card as suggested by Tori, I would take another step further to categorize each of them into necessities, education, contribution, play, long-term savings (big-ticket items), and retirement. If you’re wondering what does each category means and have not learned about how to efficiently manage your money, I would recommend doing so here. After auditing your credit card statements, sum all of your credit card expenses and other expenses such as mortgage and car repayments.
Step 2: Look at account balances
This is where you’ll need to look at the income part of your budget. List out all the income you’ve received and sum it all up. Yes, including credit card cash backs, side-hustle, and passive income from investments. Then, look at all of your account balances. Look at how much debt you need to pay, how much savings you have in your accounts, how much is in your investment account. Look at the balances and see if it makes sense. Do you have more debt than your savings and investment? Or the other way? Is your debt decreasing while your savings and investment increasing? Are you on track to hit your goals? Just by looking at the sum of all your income and your expenses, you’ll likely know how much is leftover and if you’re on track to hitting your goal.
Personally, I don’t like calculating my net worth. It’s time-consuming and it’s a waste of time. I’ve tried it before and it does not help me to improve how I manage my overall finances. Imagine being a long-term investor and the reason for purchasing a certain asset is to hedge against inflation in the long run but a dip in your investment would also decrease your net worth. Do you exit your investment because of a momentary dip? Tracking your net worth might be useful for becoming debt-free but not being financially independent.
Step 3: Set money goals (from 3 months — 5years)
Most people just stop at step 2, thinking that as long as their income is able to cover their expenses, they are good to go. But the problem is is that they go nowhere with their finances. Setting money goals sets you apart from the majority of people that are just living to survive or passing life as it is without any deliberate intention to change their financial situation.
If you’re committed to changing your financial situation, here are tips to get started. First, be specific with your goals. For example, it’s not “I want to save more”, it’s “I want to save $5000 by the end of the year” or “I want to be credit card debt-free in 6 months”. Secondly, be realistic with your goals as well. Make sure that it’s thoughtfully achievable. Lastly, break down your money goals into monthly goals. It’s important not to have an ostrich effect. It doesn’t change anything.
Step 4: Optimization
These are the goals that you’ve been putting off for some time. Or maybe it wasn’t that much of a priority and you would like to make it a priority. Everyone has different stages of their life that have different priorities. Reviewing your priority is also important so as to ensure that your financial goals are finally met. For example, have you been putting off investing for some time and would like to make that a priority? or have you been delaying your tax filing and you've yet to make it a priority? or it could be something as simple as opening an additional bank account or taking the time to sit down with your partner to discuss your combined expenses? Once you’ve identified it, place it as the top priority on your budget. If it has something to do with savings or repaying debt, put it as your money goal and place a monthly standing order for automation before any other expenses are being paid. That way, you’ll be ensured that your goals a definitely met.
My thoughts
Having a budget set in place has been a monthly habit of mine ever since I’ve graduated from college. I have been creating different templates and styles of budgeting, evolving to where it is now with the four-step process. I’ve also created different templates and used professional financial planning templates to determine my financial position such as net worth but realized that it’s not worth the effort. So, a budget makes the most sense to me as it gives me the assurance that I will not overspend and my financial goals will be achieved. It’s just a matter of time! 😄
