One of the first steps my wife and I have taken on our road to financial independence was creating a budget. We realized that we were marginally living within our means but spending WAY too much on wants. We have no problem paying the bills, but we have a problem creating REAL savings and generating wealth.
I started by taking a hard look at our checking account. I realized we needed to list our expenses and compare what we spend to what we really need to be paying. As it turns out we have (had) an uncontrolled spending habit when it came to grocery shopping and dining out. My bank statement had stops at the grocery store at least 3 times a week and fast food/restaurants almost daily from at least one of us.
After identifying the expense trend, I turned to Mint to create a budget. This app is awesome as it links my financial institution and compares the net income against a budget my wife and I created together. In the last few months this has created a few hundred dollar a month that we have re-allocated to paying down a car loan.
Using Microsoft Excel is another great way to create a budget. It can be customized and you don’t have to link your banking information with it. There are plenty of tutorials on YouTube on how to do this.
The biggest takeaway I had when creating a budget can be summarized below:
- List all incoming income after taxes, essentially your paychecks.
- Itemize all payment obligations such as mortgage/rent, car payments, loans, minimum credit card payments, and insurance.
- Identify saving, investments, and IRA’s you can afford to keep.
- List all utilities such as cell phone, internet, and average energy expenses.
- Narrow down food expenses and create a weekly grocery shopping plan.
- Leave some money set aside for dining out and doing something fun as a family but don’t exceed the plan.
In the end the our goal is to have money left over to create a savings, pay down loans, and to invest with. We created our plan to pay more than the minimum due on our car loans since we got the credit cards paid off.
With plan in place and a little bit of discipline my wife and I should be reaping the benefits of financial independence and wealth creation for the rest of our lives.
Cheers to your journey!