Understand Your Current Situation

If you’re not already there, it’s time to get up close and personal with your cash inflows and outflows. Track everything coming in and going out, so you’ll have a solid grip on what needs to change. Notice the additional resources in our sidebar.

For inflows, pay attention to more than just a paycheck. Gifts, tax refunds, rebates, proceeds from selling stuff – if it is money coming in, it all counts.

For outflows, the same thinking applies. Out-of-the-ordinary expenses like gifts or new tires for your car need to be accounted for just like recurring outflows.

Know Where Your Money Should Go

Every situation is different but there are some great budgeting rules that can help you get on the right path. For example, saving and investing should generally be 10-15% of pre-tax pay. Transportation expenses, including payment, insurance, fuel and maintenance, should be less than 15-20%. Housing expenses should generally be less than 25% of your pre-tax pay.

Create a Plan

Once you know what your situation really looks like and what you should be doing with your money, it’s time to put the two together and make a plan.

Funding your goals should come first, and when it comes to cutting back, no expense category should be off the table.

Just be careful not to cut so much that you won’t be able to sustain your plan over the long term. 

Make Adjustments

As your life changes, so should your budget in many cases. Try to anticipate upcoming changes to both inflows and outflows so you can make adjustments sooner, rather than later.

A good plan will require frequent adjustments to make sure it evolves with your life.