A Beginner's Guide to Budgeting

Provided by PRO Financial Network

Year after year we grow older, we grow wiser, and with a little luck and a lot of hard work our income grows along with us. Though, the more money we make, the larger our mistakes can become.

A Scrap of Paper

While it's always been possible to use as little as a scrap of paper to create a balanced budget, we have made tremendous technological advancements. Whether using a spreadsheet application, a mobile app, or the good old scrap of paper the point remains the same. A budget is created to help us make the most of our income and in order for it to be effective in doing so, it has to be followed.

Ins and Outs - Cash Flow

Start by counting what is earned and what is spent. A budget that doesn't consider current expenses will be difficult if not impossible to follow. After taking note of your income and expenditures (which would include housing, utilities, food, debt payments, transportation, etc) subtract your expenditures from your income to ensure your budget "balances out".

Begin by deducting taxes from your gross income or by starting with your net income at the top of your statement. Don’t forget that what you purchase may also subject to taxation. The degree to which depends on which state, county, and city you’re making a purchase in. Some areas of the united states such as Chicago can reach over 10%.(Avalara) This can drastically reduce the power of your take home pay.

PRO Tip:

Collecting receipts, whether in paper or virtually on your phone’s banking app can help you stay conscious of your spending and help ensure that the budget is followed.

Adjust, Adjust, Adjust

A balanced budget is great start. An unbalanced budget (i.e. a negative number at the end of the month) is a signal that changes must be made. Two primary options are available to budgeters; increase income or decrease expenses. Typically only certain non-essential expenses can be reduced. Although some food, can also be subject to budget cuts, for example coffee from the drive-thru and fast food are often two of the first items to be brought onto the chopping block.

Increasing income can be attained in many ways. It doesn't have to mean taking up a second job although it could. It could also mean starting a business on the side or receiving a well deserved raise at your current job.

Goals and strategies.

All the money not consumed by expenses is proof that your budget is effective. Don't forget to budget that money out though. That should be put towards goals, both big and small. It might be saving for a vacation or a kitchen renovation or for your children's college education. It's whatever your goals might be.

It's important to note that your goals should fit into the bigger picture. Like a line is a series of points your strategies are a series of goals. Even if well intentioned, failing to align short term goals and long term strategies can be detrimental to success, financial and otherwise. A trusted financial advisor can help make strategy a success.

It's Different For Everyone

While all budgets work on certain principles like the effect of expenses on income, every budget is not the same. There is no one size fits all plan and implementation varies heavily. We all have different goals, strategies, and starting points.

PRO Financial Network now offers budget development services (budget development included in both Milestone and Full Financial Planning) Michael Romanello can be reached at 440-871-3067 or by emailing mromanello@profinancial.com