The most important part of being financially successful is creating (and living by!) a budget.
I can't tell you how many people I know who make oodles of money but have nothing to show for it, no great savings or investments. By contrast I know many folks who earn very average incomes but have set themselves up brilliantly and have savings and investments working away for them, are able to do wonderful things every year, while never making a late payment or finding themselves in financial strife.
It's all in the perspective. And a good budget.
When I talk to my pro-makeup artistry students about running a business budget, and only spending the allocated percentage of their income on new eye shadow palettes, most of them look at me blankly, or with an embarrassed confusion because no one has talked to them before about making a budget.
So let's look at how to do it:
How To Make A Budget
List Your Income
Whether you go old school and use a big yellow legal pad, or maybe you do a spreadsheet or even an online budget tool, you need to start by making a list of all your income from it's various sources.
Don't forget to factor in extras such as child support, residual income and side jobs.
List Your Expenses
This one is always a bit uncomfortable to do because most of us spend more than we should, often more than we earn.
Start with your fixed expenses. Those are the ones that are the same every month, such as rent/mortgage payment, car payment, insurance, utilitites, phone, cable, internet.
Next list your non fixed expenses that pop up during the year. For example you know your car registration is due every September, you will need x number of oil changes each year, annual subscriptions, membership dues - you get the picture.
This is really important because not planning for these expenses can derail you and get you into a place where you can't pay bills that month.
Perhaps the biggest money pit is the amount you spend on food, entertainment and transport (gas for your car, taxi/uber etc)
Factor in a realistic amount for what you think you are spending in this category each month. I guarantee you you are spending more than you realize!
Create a category for random things such as clothes, shoes, homegoods, social events, birthday parties, child expenses - you get the picture.
A budget has to run to a zero game. By that I mean it has to round out to zero dollars at the end of each month, so every dollar you earn has to fall into a category or have a name.
Plan Your Savings
Savings fall into several categories.
Emergency Fund
You need to have at least $1000 in an emergency fund. This can be for unexpected medical expenses, unexpected car expenses, unexpected home expenses etc. There will always be crazy emergencies that pop up in life, and you have to be ready for them when they do arrive.
When you do have to dip into the emergency fund you then have to replace the money you took from it, which means you have to figure out where that money is going to come from.
Six Months Of Bills
You need to build a savings fund to cover 6 months of bills in the event that you lose your job, get sick or injured and can't work.
Mid-Term Savings
This is the fund for travel, for saving for a new car or a new couch, upgrades to your home, anything that you are working towards aquiring or achieving.
Long Term Savings
Your retirement, investments, college funds for kids.
Once you have your savings and expenses lists made you can look at how they shape up against your income list. You may find that your grocery, entertainment and clothing expenses need to be trimmed down!
Break It Down Monthly.
Your budget changes from month to month, so once you have your year's overview in place you create a budget for each month, ideally a few days before the month begins.
Pay Yourself First.
The first item to be fed each month is the savings accounts.
Feed the pig.
You have figured out the percentage of income that has to go to savings, so that amount goes from each paycheck into savings as soon as you get paid. If you don't pay your savings first you will never get the right amount saved - there will always be extra expenses that will steal that money if you don't take care of it first!
