By Fred Crooks
Creating a budget can be a tricky task. Allocating money to different areas of your life or business takes time and effort, and occasionally some
deep introspection into your personal spending habits. Sticking to a budget can be just as tedious, particularly if you don’t have a great system for remembering how much money is budgeted for what. But creating and following a budget is a critical practice if you want to achieve success.
Very few people achieve success in life or in business without a plan. Budgeting is exactly that: a plan – for your money. When you have a plan, it’s far easier to reach your goals than going at it blindly. How you create your budget depends on your goals. If you are working toward a large purchase or investment, make sure your budget reflects the need for bigger savings. Work your budget out and adjust it to fit your goals.
Once your budget is in place, it’s important to find a strategy for staying on budget that works for you. That is where the Envelope System comes into play. The Envelope System separates the elements of the budget. Money goes into each “envelope” for each part of the budget. Energy costs, for example, would go into one envelope, while entertainment money would go into another, and a house payment in another. Create (and follow!) rules for each envelope – determine which ones you can borrow from, and create one called “left over” that holds any money that’s left over after bills are paid. This should be the first one you borrow from, if you ever need to borrow. At the end of the month, any money in the left over envelope should be put into savings. Start over each month, and make minor adjustments if they need to be made. Make your budget work for you.
You don’t have to deal in cash to make the Envelope System work for you. You can keep it digital if you prefer. You just need to keep track of where you spend and what you spend it on, and update your “envelopes” daily. Opening several bank accounts can be helpful as well. We are seeing, more and more often, that people have different checking accounts for gas, groceries, entertainment, and bills. They have multiple savings accounts – for retirement, a new home, home improvement, vacations, and new cars. Check with your bank regularly to see if they offer any incentives if you open a new account. Oftentimes, banks will offer financial incentives for opening new accounts. If your bank does offer incentives, wait until the time is right to open additional accounts and take advantage of the offers.
If you need help creating a budget for your company, or finding the right strategy to reach your goals, contact us at CPA Corporation.