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Budget - Your Financial Plan

Your personal budget is your financial plan – it will help you visualize and track the resources (money) coming in, and will help you prioritize how to spend those resources on what you need and what you want. 

A financial plan will also help you proactively prepare for and deal with unexpected or infrequent expenses, rather than simply reacting when these things come up.

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STEP 1: Where to Start? ​​

  1. If you aren't even sure how to begin, don't stress!  The key is to be mindful about how you are using your money, so that you can achieve your goals in life.  To do this effectively, you need to know what you are earning and how you are spending.  Tracking your income and expenses will give you the information needed to gain proper command over your money plan.  Most people are surprised at how their actual numbers compare to the estimates they have in their mind; until you start tracking, you won't know for sure.

  2. These days, there are plenty of resources online to help with managing and checking in on your money plan.  My top two online recommendations are www.Mint.com and www.YNAB.com.  I'm sure there are other resources out there, but Mint and YNAB are the two that I have used.  They both link to your accounts (checking / savings / loans / credit cards) and pull transactions in to allow you to easily categorize the transactions and tally up totals.  These apps do the heavy lifting, so you don't have to manually enter all the transactions yourself, and categorizing the transactions as you wish is straightforward.​

    • www.Mint.com​: ​

      • Pros - it's free, and has all the functionality described above.  The transaction import functionality seems to be pretty seamless.  The web-based platform is pretty intuitive and easy to understand for tracking your budget.

      • Cons - the mobile app is not very good; this is the main reason I ultimately stopped using Mint and made the switch to YNAB.

    • www.YNAB.com:​​​​​

      • Pros - it has a great mobile app that is really everything I was looking for in a budgeting / financial planning tool; the mobile app also speeds up tracking and makes it easier, so I can keep tabs on my money plan much more efficiently; it utilizes the "envelope system" of giving every dollar a job by assigning it to a category as the money is received - you can only budget what you actually have, which is a philosophy I like a lot; great educational resources​ are available to assist with using the system and getting set up.  I love it and have switched over from Mint

      • Cons - after a 30-day free trial, it's a paid subscription service, but in my opinion the cost is well worth it due to the quality of product it delivers.  The only other con is that it doesn't seem to support connectivity to all financial providers, so for some accounts, it might require manual entry.

  3. If you prefer to be completely manual​, sticking with Excel or simply pen and paper is a valid option as well.  Most people would probably say I go a bit overboard, because I do a lot of tracking in my own Excel workbooks in addition to using YNAB, but I enjoy having the extra layers of information, and I'm a huge Excel nerd.  Don't judge me.  As time goes on, I'll add more downloadable resources to this page, but until then feel free to email me if you would like a downloadable or printable budgeting tool and I'll see what I can provide that might work well for you.

  4. The most important thing is to pick a system that feels comfortable to you, and that you will stick with.  Like a gym membership, a budgeting system is only worthwhile if you actually use it.

Step 2: Tracking and Adjusting

  1. Regardless of what method you choose to keep track of your budget, once you are set up, you need to check in regularly. I recommend spending a few minutes every day or 2, which minimizes the time spent on upkeep, and allows you to identify changes or issues in real time, so you can course-correct as needed.  Use and app or write down and categorize all expenses, and if you are creeping up toward the upper limit of a budget category, then make adjustments as needed to limit over-spending.

  2. Keep in mind that many of your budget categories are likely averages.  If you are coming in below your budget in a given month, that’s GREAT!  But, that probably means you will go over your monthly budget in a future month, so don’t spend the “extra” money – save it for when you really will need it. 

    • It can be helpful to set up “sinking funds” for various known expenses, like car repairs, or Christmas gifts, so you can build up the cash in a separate account (or just earmarked with the envelope system) and it will be there when you need it.

  3. A key ingredient is mindful spending.  Some people are forced to be extremely careful and mindful with all spending, due to having limited income and a very restricted budget. No matter what your specific situation is, assessing a purchase before you make it and deciding if it’s accounted for in the budget will help you stay on track.

  4. Every 6 months (or more frequently if you are just starting out and are developing your plan for the first time), it makes sense to assess the overall budget, how well it’s working for you, and what changes you can make.  You should be realistic about your spending, to prioritize the things you need or want the most.  Once you are comfortable with how your financial plan is set up, it may only need periodic tweaks, but as long as you’re being mindful about your financial plan, you’ll be miles ahead of where you were before.

Step 3: Net Worth Tracking

  1. Your net worth is your total assets (value of the stuff you own), minus your total liabilities (how much you owe).  I find it helpful to track this, as it helps show that I’m on the right path and making progress toward my eventual retirement.  If you keep track of this sort of info from year to year, it can provide you with motivation and reassurance that your proactive personal financial plan is paying off in the long term.

  2. I currently track my net worth in Excel, but have heard multiple recommendations for www.personalcapital.com.  If and when I try out that site, I'll provide a more detailed review.

Click here to download the BK to FI Budget & Net Worth Tracker with Safe Withdrawal Rate Calculator to help keep track of your numbers

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