Does it feel like your money just disappears?
You’re not the only one if that feels familiar. With today’s unpredictable economy and rising costs, paired with the consumer-driven culture in the U.S., managing your finances can be really tough.
To get better control over your money, the best approach is to create a solid financial plan and stick to it.
**Initial Steps Before Creating Your Financial Plan**
First, you need to understand how you spend your money. Spend a few weeks tracking all your expenses. This will give you a clear picture of where your money is going, and you might find some surprising areas where you spend more than you realized.
**Creating Your Financial Plan**
After a few weeks of tracking your expenses, you can start building a realistic financial plan. Consider calculating these:
– Regular fixed monthly costs like rent or mortgage payments and car payments.
– Variable monthly expenses such as groceries, entertainment, and fuel.
– Periodic expenses like car insurance and renter’s insurance that are paid annually or semi-annually. Always compare rates from different providers to make sure you’re getting the best deal.
For periodic expenses, divide each one by 12 to determine how much you should set aside each month. For instance, if your annual car insurance costs $750, you should save $62.50 each month for it.
When you first build your financial plan, don’t make it too strict or unrealistic. Aim for something practical during your first month.
Remember, you might not see immediate results. If you’ve struggled with budgeting before, don’t expect your habits to change overnight. Keep tracking your expenses throughout the month.
**Evaluating Your Financial Plan**
At the end of the month, compare your actual spending with your planned budget. This will help you find areas where your budget was unrealistic and where you overspent unnecessarily.
If your spending exceeds your income, you’ll need to either cut back on expenses or increase your earnings. Doing both can give you some financial relief.
To cut expenses, examine every item in your budget. If you own a home, think about remortgaging. Shop around for better deals on car, home, and life insurance without sacrificing coverage. Contact your credit card company to see if you can get a lower interest rate.
To boost your income, consider asking for a raise, starting a side hustle, or selling unused items at home. A more sustainable option is creating passive income sources, which might take time but can significantly improve your financial situation in the long run.
Creating a realistic financial plan takes time. Expect to spend at least three months aligning your plan with your actual spending. As you become more familiar with your financial guidelines, you’ll gradually see improvements in your financial health.