Feeling overwhelmed with handling money? Don't know where to start? The first step towards financial success is actually sitting down and making a plan of where you want your money to go. In essence, we want every dollar to have a home. This allows you to understand where your money goes each month, and how to stop bad habits.
Step 1: Go back
The first step of budgeting is to open your bank transactions or gather receipts so you can identify all of the places you spend your money. Ideally, you should go back about two months in order to see the best spending patterns.
Once you have all of your documents open, grab a notebook and write down common places you spend your money at: Starbucks, Amazon, etc. This will give you a clear idea of where your money is going. Do this for all transactions and keep the places specific.
Step 2: Catagories
Now that you have a list of places where you spend your money, combine them together to form categories. Keep the categories specific, though.
This online calculator is perfect for identifying your categories!
Step 3: Budgeting
Take a look at each category and calculate the average total you spend per month. Reflect: is that a healthy amount to spend each month? Or do I need to cut back?
How to Determine Budget Percentages to Meet Your Money Goals
This is a good article to help you understand what is a 'healthy' budget for each category. It also helps you understand what percent of your income should go to what category.
Step 4: Action Plan
Now that you have a clear idea of what categories you have, how much you should allocate for each, it is time to put these words into action. Having an action plan is the final and most effective step in achieving financial success.
With each category, understand why you are spending more than you should and research different ways on how to fix that. For example, if you are spending a lot on eating out, figure out why? Is it because eating out is quicker? Easier? Is it because you don't understand easy and cheap meals you can make at home? Find solutions to your scenarios.
If you need additional help in making an action plan, schedule a free coaching session with one of our Bobcat Financial coaches!
Step 5: Relax, you are finished!
Congratulations, you are finished with making your budget! This 5-step plan will help you tackle any financial frustration you might have that comes with making and sticking to a budget.
Author:
Yasmin Jama
Bobcat Content Creator, Financial Wellness Center
Yasmin is currently a fourth-year majoring in Cognitive Science at the University of California, Merced. Read more about her here!
