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How to create a budget and stick to it: Tracking expenses to creating a financial plan

If you’re like most people, you probably have a general idea of how much money you make each month. You might also have an idea of where it goes, but the amount of discretionary income that remains is a mystery. That’s because many expenses are nonnegotiable—they must be paid regardless of whether or not there’s enough left over for investing in your future. But if you know exactly where your money goes every month, it makes it easier to start planning for what comes next: retirement! In this guide we will help show you how to set up a budget so that the amount left over at the end of each pay period can grow with time and become something meaningful for your golden years.

List all of your routine nonnegotiable expenses.

Now that you've created a list of your recurring expenses, it's time to break them down into categories. This will help you keep track of how much money you spend on each type of expense and help identify areas where you can save.

  • List all of your routine nonnegotiable expenses. These are things like rent or mortgage payments, utilities (electricity, gas), car payments and insurance premiums. If there are other monthly bills that come up consistently (such as cable or phone service), add those as well.

  • Include the amount you spend each month as well as annually in this section so that it's easy for anyone reading over your budget to see what kind of financial commitment they're committing themselves to when they agree to take on certain obligations (like buying a house). Also include any savings set aside specifically for these expenses--if possible--in order for them not only know how much money must be spent but also whether there is enough available capital left over after those costs have been met so something else can be done instead (such as saving up for retirement).

The amount of your income that’s left is available for investing in your future.

The amount of money that's left over after paying for the essentials is available for investing in your future. If you want to buy a house in five years but have no savings, it will be difficult and stressful. If, however, you are able to put aside $500 per month towards this goal (and continue doing so), then there's a much better chance that by the time five years passes and it comes time to buy a house, your dream can become reality.

The key here is knowing how much money monthly investments should be based on what kind of returns they'll give and how long it will take them to reach their goal (which also depends on many other factors). For example: if my goal is saving up enough money for retirement ($1 million), then I need about 8% return per year just so I don't run out before reaching 65 years old...and even then there's no guarantee!

Set down your goals with an estimate of their costs.

Now that you've identified the goals you want to achieve, it's time to estimate their costs. If your goal is something like "spend more time with my family," then there won't be an exact dollar amount associated with this goal. However, if your goal is "buy a new car," then yes--there will be an exact dollar amount involved!

Here are some examples of common financial goals along with how much they might cost:

  • Buying a house/apartment: $100k+ (including down payment)

  • Going on vacation: $2k-$5k

  • Starting a business: $50k-$250k+ depending on what kind of business it is

Choose investments that will help you get there.

Now that you've got a handle on your spending, it's time to choose investments that will help you get there.

  • Choose investments that match your goals. If your goal is to save for retirement, then an S&P 500 index fund might be a good choice--but if it's not, then maybe it isn't!

  • Choose investments that match your risk tolerance. If the idea of losing money makes you nervous and twitchy, then perhaps investing in stocks could be too much risk for now; or maybe even ever! On the other hand if volatility excites rather than scares you (and most people), then a stock market index fund would probably work well as part of an overall financial plan designed to meet short-term and long-term goals alike.

Figure out how much you need to put aside monthly.

When you're trying to create a budget, the first thing you have to do is figure out how much money you need to save each month.

To do this, add up all of your monthly expenses and divide them by the number of months in a year (12). This will give you an average amount that needs to be set aside every month for those expenses. If there are specific months when an additional expense comes up, such as Christmas or birthday gifts for friends and family members, then take into consideration what percentage of those costs will be paid out-of-pocket versus being covered by other sources such as gift cards or credit cards with rewards programs built in (e.g., Netflix).

Money doesn't grow on trees and neither does retirement, so start saving now!

You should save money because it's the right thing to do. But you also need to know that saving is important because of the long-term benefits it can offer.

Investing early in life and investing regularly (not just once) are both essential when thinking about your future financial security. You can't afford not to get started on saving now, even if it feels like an uphill battle at first!

Sustainability is key: If you want your savings plan/system/methodology/process/strategy/systems and procedures (SAPPS) for managing your finances sustainably over time.


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