Welcome, Future Early Retirees.

If you have the goal of achieving financial freedom, creating a budget is a key step, but it can be an intimidating process for many people. The good news is anyone can learn how, regardless of their financial expertise.

In today’s newsletter, I’ll go over how to put together a budget in the following order:

1. Determine your income

2. List your expenses

3. Prioritize your expenses

4. Allocate your income

5. Begin tracking

6. Review and adjust

Important Reminder:

Managing finances is one of the most stressful aspects of navigating adulthood. You are working hard at your job and feel like every time you check your bank account, it’s lower than you expected but you don’t know why. Having a budget helps give you peace of mind and sometimes even a sense of freedom, as it helps identify exactly where you overspend.

Step 1: Determine your income

• This includes any money you earn from your job, freelance work, or any other sources of income.

• Be sure to include any regular bonuses, commissions, or overtime pay you expect to receive.

• A quick way to go about this is to check your bank account and see how much money was deposited from your job in previous months. This will give you a clear picture of how much money you have available to spend each month.

Step 2: List all of your expenses

• Start with your fixed expenses, such as rent/mortgage payments, taxes, utilities, car payments, insurance, and any other bills that you pay on a regular basis.

• List your variable expenses, such as groceries, transportation, entertainment, and any other expenses that vary from month to month.

• Be sure to factor in any irregular expenses, such as quarterly or annual bills.

Step 3: Prioritize your expenses

• I like to go through each expense and place it into a category. For example, gas and electric bills would go under utilities, while tickets to the movie theater could be considered entertainment.

• Personally, I split my expenses into 1 of 3 designations: spending, giving, and savings/investments. Then I include different subcategories for each. E.g. groceries, housing, charity, etc.

• Consider your most important categories first and allocate enough money in these areas before considering things like entertainment, etc.

Step 4: Allocate your money 

• Start with the expenses you designated as a “spending,” and make sure you have enough money to cover these expenses each month.

• Allocate money to your savings/investing group based on your financial goals. I recommend aiming for 15-20% of your expenses to go into your savings/investing group. I understand this may not be double for a lot of people, but it is something to work towards over time.

• If you are fortunate enough to have money left over, I recommend getting into the habit of giving, even if it’s a small amount. Whether you choose to foster close relationships or donate to charity, it’s crucial to remember why you are pursuing financial freedom. You don’t want to reach your financial goals only to realize you’ve focused solely on accumulating wealth. People who do this often end up feeling disappointed and wondering why they made all those sacrifices.

Step 5: Track your spending

• Once you’ve created your budget, it’s important to start tracking your spending to ensure that you’re sticking to your budget.

• There are many budgeting apps and tools available that can help you track your spending, but you can also use a simple spreadsheet or pen and paper.

• Put each expense into a category so you know where to account for it on your budget.

Step 6: Review and adjust

• I have weekly check ins with my wife to look at how we are doing. These conversations help us align our financial goals.

• While these weekly check ins work for us, it may not be what is best for you and your situation. Whether it is checking weekly or monthly, establishing a routine of checking yourself will help establish a budget that is best for you.

• In all likelihood, you probably won’t stick to your first budget as there will be surprises or things you simply forgot to account for! This is normal, especially if it’s your first time creating a budget. I had to change mine many times when I put together my first budget. Don’t beat yourself up when you don’t stick to your budget perfectly.

• When you aren’t under budget in a certain category, ask yourself if the amount you have allocated is unreasonable or if there is something you are doing that is preventing you from sticking to your budgeted amount. Whatever the answer is, make the changes necessary so you are able to get under budget.

• Keep working at it and adjust as you go along.

Wrap Up

Congratulations! You are one step closer to achieving financial freedom. Don’t be too hard on yourself if you don’t stick to your budget perfectly. This is something I failed at multiple times before settling on a budget that works for me. Getting to be financially free is a process, and there will be bumps along the way. If you would like a template to help you get started, download the template I personally use below. Use a pen and paper if you would like!

Thank you for reading this post! If you found this information valuable, please consider sharing with friends and family so they can get more helpful personal finance tips and strategies. You can reply to this email to let me know your thoughts and experiences.

For next weeks edition, I’ll go over how you can automate your personal finances so you don’t have to spend some much time managing it. Together, we can all work towards achieving financial freedom and living the life we deserve!

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