The 5 Step Budget Plan That Will Change Your Finances

We all want to become financially independent, right? We want that care-free life never worrying about money and where we would find it to make end’s meet. It’s a dream everyone has. Money unfortunately makes the world go move. There are countless hurdles to overcome without it. It sucks but that’s the reality. Money won’t buy you happiness, but it will open up doors for you and fuel whatever may make you happy.

That doesn’t mean we all can’t become financially set. Setting a proper budget will allow us to reach financial goals that will propel us into a stable lifestyle. Yes, I said budget, please don’t walk away. Your budget doesn’t need to be some complicated spreadsheet full of charts and calculations. All you need are 5 things to organize your money and your life.

Everyone knows you just list your income and your expenses and just see what’s left. But there is a much better approach that can change your life. It’s a very organized and proper approach to setting goals and actually reaching them.

Ever want to really save for a vacation and not put everything on the credit card? To save up for those new pair of shoes with all cash? It’s a budget that will let us easily accomplish those goals and determine how long it will take to reach them.

The first step is to take a full semester of Calculus and Algebra, then take a moment to study further under the guidance of the budgeting monks in the Himalayan mountains. Just kidding.

Figure Out Monthly Income

The real first step is to determine your monthly income. Any paychecks received for the month and any additional income you may receive from side hustles or second jobs. I like to document each one separately in a spreadsheet or a piece of paper, just to offer some clarity when coming back to examine everything.

List Fixed Expenses

The next step is to write down all your fixed expenses for the month. That includes your mortgage, utilities and even your car payment. These are all expenses that remain the same month to month.

It’s easy to plan ahead for these types of expenses since they will always remain the same. I’ve found the expenses listed in this category are harder to cut than others, often more important and set in stone.

List Variable Costs

Next is to write down all of your variable costs. That would be groceries, ordering out, any shopping you may do and even transportation or gas for your car. These types of costs fluctuate month to month and are never the same.

It’s difficult to predict how much you may be spending the upcoming month, but looking at past costs in previous months and looking at your daily spending may give you a good handle of predictions. Whether you take the average you typically spend or put in a range, it’s always good to have a goal set for that category.

Net Income

Now the fun part, or the sad part, depending on how bad your spending is. Time to calculate your net income for the month. To do that, just take your monthly income and subtract your fixed costs and variable costs from it.

Monthly Income – (Fixed Costs & Variable Costs)

It’s a simple calculation and it will tell you how much money you have left over the month. This amount of money is what you have remaining to spend or invest, whichever you would prefer.

I like to take that time to determine goals I may have, such as saving up for something or planning out my next investment. It’s essentially free money that can be placed anywhere. Please don’t be reckless with that remaining money and put it to good use.

Adjust Backwards To Increase Net Income

We all want to walk away from the month with more money, right? Whether that may be for going on vacation sooner or investing even more into some Tesla stock. Everyone wants more money and I’d be very concerned if you didn’t. Don’t lie to me I can read you like a book.

Use this opportunity to look at your goals you have with the net income and determine how long it will take to reach those goals. If you only continue to save 10% of your monthly income, it will take ­­­___ number of months to reach your goal. If you’re not happy with that timeline, I suggest you start going back through your monthly expenses and see what can be lowered.

How long do you want your new timeframe to be? Take that into consideration when looking at how much more you want to walk away with. If you want to increase your savings rate by 20% than you have your number. All that needs to happen are one of two things. Either you increase your income, which is the harder choice. The second would be to lower your monthly expenses.

I find it’s much easier to take out items in your variable costs each month. Maybe start eating at home more often and cut out some of that unnecessary shopping for awhile. Take a good hard look at all your spending and see what you can live without.

Some extreme cases may be to bring on a roommate to cut your mortgage payments or, god forbid, you cancel your Netflix subscription. (Which they are increasing the price soon which is ridiculous, just saying)

Nothing should ever be set in stone and if you want to reach your goals bad enough, you can make it work. Having all your monthly income and expenses written out for you in a spreadsheet can be eye-opening and allow you to find wasted money and get you on the right path to reaching your goals.