April is Financial Literacy Month! We’ve asked Brittani Sade, Founder, Corporate Black Gurl, to share her tips on creating a budget that works.
In order to create an effective financial plan, you must have an accurate idea of your spending. Pull your last 2-3 month’s bank statements and account for all your mandatory and discretionary spending. Separate your mandatory and discretionary payments into sections. (It helps to have a budget spreadsheet)
- Mandatory Expenses: rent/mortgage, utilities, car payments, insurance, grocery, phone, cable, Internet, etc.
Debts: credit cards, student loans, etc.
- Discretionary: memberships, shopping, self-care, clothing, dining out, etc.
Calculate Your Current Spending
After organizing your payments/spending, subtract your mandatory expenses from your income. This will help you determine whether your focus should be on cutting back on spending, bringing in more income, or both.
Example: $4,000 income less $2,000 in mandatory/debt expenses equals $2,000 left for saving and discretionary spending.
Generally, your mandatory expenses should be 50 percent or less of your total income. Your savings amount should be at least 10-15 percent of your income. Of course, everyone has different financial situations, but that is the goal.
Set Your Financial Goals
After calculating your current spending, you will have an accurate picture of where you stand financially. Now it is time to set your goals! For many, the goal is to save. Whether you’re saving for a rainy day, a major purchase, or an event (holidays, travel, birthdays, etc.), when you set goals and write them down, it reminds you why you’re creating a financial plan in the first place. Once your goals are set, it is time to curate a plan for your finances so that you can track your spending and hold yourself accountable.
Create a plan. Track your spending.
Now that you have set your goals and have determined areas to cut back on spending, you can utilize your budget spreadsheet to create your plan and track your spending.
First, list all your mandatory expenses (including debts). I recommend having sections for your mandatory expenses for better tracking and organization.
Example: Home (rent, utilities, internet, cable, HOA) Car (gas, insurance, car payment, maintenance), Debts (credit cards, student loans, etc.), and so on…
Next, list your savings section or sections.
Example: Rainy Day, Travel, Birthday
Then, add your discretionary expenses.
Example: Self-Care, Dining out, Activities, Clothing/Shopping, etc.
For each line item, add the amount you plan to spend for the month. Leave an additional cell beside each planned expense so that you can later add the actual amount you spent at the end of the month.
The budget spreadsheet helps you keep up with your spending, and lets you know how well you are sticking to your plan. You know, accountability. Based on the previous month’s accounting, you can adjust your next month’s budget. Creating envelopes of cash also helps with making sure that you stick to your plan.
Stick to Your plan
The most important part of creating a financial plan is to stick to it. This is how you accomplish your goals and successfully pave your way to overall financial wellbeing. When you tell your money where to go, you don’t have to worry about your money controlling you.
For more tips on financial topics as well as how to be more financially independent, check out corporateblackgurl.com