You’re supposed to let sleeping dogs lie. And for a while, I was going to do that with our memes feature. These were Intern Alexandra’s posts (sadly, she’s no longer with us), and I was ready to drop the idea off at a farm in the countryside to “retire”—don’t worry, the old-blog-post farm is totally real!
But then, an actual dog convinced me otherwise. Yes, it’s the financial advice dog.
So, my new plan is to teach this old dog (i.e., our post) a new trick. Instead of many memes coverings many aspects of student loan repayment or identity theft, this post covers a single meme with a single lesson.
We’re no stranger to taking financial advice from animals, so let’s see what this dog digs up for us about building a budget. (Starting now, I promise the dog-related puns won’t be so ruff… starting now.)
Set Your Goals
We’ve talked about how January is the perfect time to set goals. Well, a budget is the perfect way to turn those goals into reality—whether they’re big (e.g., paying for school) or small (e.g., going to a concert). It’s easy to lose track of goals throughout the year: Stay on them by creating a budget focused on achieving them. The financial advice dog will walk you through this process.
Step 1: Identify Your Income
First, you want to look at how much you’re making each month. This could come from salary, tips, or lots of other sources. Make sure you’re using your net income, not your gross income. Gross income is your pay before taxes and other items get deducted. Net income is what you’re left with after all that—it’s the amount you can actually spend on stuff.
Step 2: Outline Your Expenses
Ah, yes, that “stuff” you buy makes up your expenses. We’ve covered the types of expenses before (with a helper even more improbable than a dog), but here’s a quick recap. Expenses sit in three buckets: fixed (things you have to pay, like rent), flexible (things you need but their cost varies, like food), and discretionary (things you don’t necessarily need, like a new outfit). Identify all your expenses and subtract them from your income.
Step 3: The Actual “Budgeting” Part
Have money left over? Great! Put it toward your goal. If you’re on the negative side of the ledger, though, it’s time to make some choices. Organize your expenses into those buckets, and see if you can reduce the flexible and discretionary ones. Just ask yourself, “Is (pizza, magazine subscriptions, etc.) worth more than my goal?” If the answer is “no,” cut it. Once you’ve done that math, you’ll be able to predict your future income and expenses, as well as the savings you can roll over each month. Record it all; that’s your budget.
Now, Live Your Life
Above all else, remember that your budget is there to help you—not to make you play dead. If you stray and overspend on entertainment or dining out, don’t beat yourself up about it too much. It may be a sign that you need to budget for that item differently (or that you need to start earning some extra money… fast). Adjust, and try to do better next month.
Just keep at it; a budget you create but never look at won’t actually help you meet your goals. And, in the end, your goals should be what matter most.
What advice would the financial advice dog give you? Share it in the comments.