Almost everyone wants to become more financially stable, but
they are unsure how to achieve that goal. The most important things to consider
when trying to be financially stable are how much money you have, how much you
need to spend on necessities, and how much is left for saving or for disposable
income (entertainment, pleasure, etc.). It may seem difficult to become
financially stable, but with a little planning and willpower, you can become
more secure and take control of your finances.
Catalog your income. The first step to setting a budget is taking stock of how much
money you actually have to work with. Track your income over the course of a
month to get a good idea of how much money you have coming in. If you have one
steady job, then you may already have a decent idea of your income. If you work
irregular hours, a couple part-time jobs, as an independent contractor, or for
commission, however, your income may vary from week to week.
- Make a list of every source of income you have. Then figure out how much money each source of income brings in.
- Acknowledge that the numbers might change from one month to the next, and factor that variable into your monthly budget so you'll be prepared for a short week or two.
- If you live with your partner and are trying to combine your assets, don't forget to add in your partner's income.
List your non-discretionary expenses.
Non-discretionary expenses are the things you'll always have to pay every
month. These can be easier to track because of their regular frequency, though
you may not be explicitly aware of how much you pay each month for these
necessities.
- Non-discretionary expenses include things like groceries, insurance, rent/mortgage, utilities/bills, gas for your vehicle (if you have one), and/or a metro card for public transportation (if you use it).
- Though you probably have a decent idea of what your non-discretionary expenses are, you may not realize how much you pay for these expenses each month.
- Make a list of each of these expenses, and use the last few months' worth of receipts or credit card statements to estimate your average monthly bill for each expense.
Determine your discretionary expenses.
Everyone has variable expenses that arise from month to month. These might
include shopping for clothes, recreational expenses, and entertainment expenses
like movies, books, and music.
- These expenses are harder to predict than your fixed expenses due to their variability.
- It may be useful once again to review your receipts or credit card statements from the last few months to get a sense of how much you spend on clothing, recreation, and entertainment.
- Your non-discretionary expenses should be paid first when spending money. The discretionary expenses may be unavoidable from time to time, but you'll need to prioritize paying for non-discretionary expenses before thinking about paying for anything else.
Look for ways to increase your income.
Setting a budget certainly requires cut backs and sacrifices. But a good budget
might also include some extra income. Having more money coming in can help you
increase your savings while still paying for your day-to-day expenses.
- Look for a part-time job you can do on the side. Just make sure that the hours and the type of work you do wouldn't cut into your regular/primary job.
- Sell old things that you don't use and don't see yourself realistically needing in the near future. Have a garage sale, or consider selling these items online (like through eBay) to maximize your potential income.
- If your partner or your children (assuming they're old enough and still live at home) are able to work, ask them to help contribute to your household budget. Even a little money from a part-time job could make a big difference when added to your regular savings and income.
Set an appropriate time period.
If you're trying to set a long-term ten-year budget for yourself, you might get
frustrated with a lack of visible results. The same might be true if you expect
to see an increase in savings after only a day or two. Instead of setting
unreasonable time frames for your budget, try using a measurable span of time,
like a monthly or yearly budget.
- You'll need a month-to-month budget to plan for regular living expenses, bills, and groceries.
- An annual budget can help you plan for bigger expenses that come less frequently, like paying your income taxes, buying gifts for your family during the holidays, or even an upcoming vacation.
- You may want to consider having two separate budgets to account for each spending variable.
- You can use a budget worksheet to help keep track of your expenses. This can help you balance your budget by tracking regular monthly expenses and deducting them from your average monthly income.
- Be willing to make adjustments to your monthly and/or yearly budgets as situations arise. That doesn't mean dipping into your savings every other weekend for a shopping spree, but it does mean factoring in possible expenses like auto repairs, medical bills, and so forth.
Establish an emergency fund.
In addition to your budget for everyday fixed expenses, you should also work to
set aside some money for emergencies and other infrequent expenses. Having a financial
safety net in case an emergency arises can help give you greater peace of mind
and make you feel more financially stable.
- Make your initial savings goal relatively low and easily attainable. Try to set aside enough from each paycheck ($25 to $50 each week) to have around $250 to $500 in your emergency fund.
- Find ways to cut back on expenses each week so you can contribute more to your emergency fund.
- Save the money you would normally use for an expensive splurge (say, a big shopping trip once a month) and put that towards your savings. You can also try shopping around to save money on your insurance and deposit the difference.
- Once you've adjusted to taking $25 to $50 out of your paycheck each week, set up an automatic deposit with your bank or credit union. They'll automatically deduct and deposit your weekly savings sum from your paycheck, so you won't have to.
- After you hit your initial goal ($250 to $500 in savings), set the bar a little higher. Push yourself to double that amount by continuing to make the same sacrifices each week to meet a new goal (say, $1,000 this time).
- A good goal is to save one month's worth of non-discretionary expenses.
- Ideally, your emergency savings fund should be able to support you and pay for all of your living expenses for six to eight months, if needed. It will take a while to save up that much money, but with some planning and a few light sacrifices along the way it's attainable and well worth it.
