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Step Three – Get Budgeting!

October 21, 2016

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At this point in the budgeting process you should have started tracking your expenses and set your goals. If you missed these steps not to worry, you can read our blog about how to start the process here. For those on Step Three, take a look at the average or monthly amounts from Steps One and Two and come up with a budget based on those numbers.

How to Budget Effectively

Before you can go any further, you need to ensure that your expenses are not higher than your income. If your expenses exceed your income, this is where you need to make some choices based on what you’ve learned when you tracked your spending. If you still don’t balance, then you will need to look at increasing your income.

If your income exceeds your expenses, then you may want to review your financial goals and either add another goal or increase your monthly contribution to existing goals to achieve them sooner.

It is important to take a look at your expenses to determine where your needs are and look critically at the expenses that fall into the “want” category. Can you reduce the “want” spending? You may find that you can cut back a little more by reducing some of the “want” category expenses, things like buying a coffee or eating out for lunch every day.

If you have children, you may feel additional pressure to purchase various items. I suggest trying to involve them in your budgeting process to help them understand that money does not grow on trees. It is important they know that things cost money, and in some cases, a lot of money. Help them understand how to manage money and understand how much things cost. If they are old enough to get an allowance, you can have them budget their money right along with you.

Stay tuned for Step Four on managing your debt load.

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