Don’t you hate budgets! If you do,
You are not alone! In fact, only 32 percent of people have taken the time to create a budget. Perhaps that is why 80 percent of people are in debt.
Sure creating a personal budget is no fun! Unfortunately, personal budgets are the fastest way to get out of debt and achieve financial freedom.
But Wait! What if I told you that you can easily create a personal budget, set it to auto-pilot, and have it manage itself month after month!
Sounds pretty amazing doesn’t it! Well, in this post, I will show you how to easily create your own automated personal budget. And it doesn’t cost you anything! It really is the best of both worlds!
Step 1: Set Goals
Before we get into the automation part it’s important to first know what your financial goals are. You likely have one or several of the following goals. Just jot down what your goals are so you have them handy when we get to the automation step.
- Pay off loans
- Save for a new home
- Pay off credit card debt
- Save for a new vehicle
- Save for retirement
- Save for a vacation
- Save for a home renovation
- Save for your children’s college tuition
- Or another custom goal
Step 2: Link Your Accounts
Mint.com is a free, web-based personal financial management service that allows you to track all of your bank, credit card, and other account transactions through a single dashboard. You can also create goals and budgets and easily track your progress in real-time. It’s very secure and it really is the best personal financial management service out there. I’ve been using Mint to simplify my budgeting for several years and it truly is amazing.
Mint shows you exactly how your spending decisions affect how much money you have left at the end of each month. You’ll know immediately what you can do today to save more tomorrow. Once you have signed up for an account begin linking your bank and credit card accounts. Be sure to also link any line of credits, loans, and investment accounts if you want to get the most out of Mint.
Step 3: Determine Your Income & Expenses
Do you know how much money you make each month? What about how much you spend each month? Regardless, Mint can help. One of the best features of Mint is its ability to automatically remember and categorize your income and expenses.
For example, if your employer directly deposits your pay cheque into your bank account, once you categorize that deposit as income, all future deposits from the same employer will automatically get categorized as income too.
It’s the same for expenses. Say you buy a sandwich at Subway, once you categorize this credit card or debit card expense as a restaurant expense, all future purchases at Subway will automatically get categorized as restaurant purchases.
During the first few months, I had to take a few minutes to categorize all of my expenses. However, I found by month three, Mint was automatically categorizing 90% of my deposits and purchases without any guidance from me. No more going through receipts and manually tabulating expenses. Mint does it all for you automatically – you don’t even have to ask!
Step 4: Create A Personal Budget
Mint will automatically list all of the transactions from your cash and credit accounts. It will also tabulate your total monthly income, total monthly expenses, and your net income so you can easily determine if you spent more than you earned in any given month. It will even calculate your net worth at any point in time.
There are a few things you will need to do at initial setup in regards to budgeting. Click on the “Budgets” tab at the top of your dashboard and then click “Create a budget.” You will then be prompted to enter a monthly spending amount for any categories you wish to include in your budget. You can easily go back and change any of these amounts so just enter approximations to start. You don’t have to create a budget line for every category. For example I created 7 budget expense lines for the following categories:
- Auto & Transport
- Bills & Utilities
- Food & Dining: Groceries
- Food & Dining: Restaurants
As you can see I broke the Food & Dining category down into two separate sub-categories. I did this so I could more closely monitor my restaurant spending to ensure I don’t spend too much while eating out. If I hadn’t broken it down, my restaurant bills would have been grouped with my supermarket spending. You can break any category down into sub-categories if you wish for them to appear on their own budget line.
I then created 1 budget income line to capture my monthly income. If you have income coming from multiple sources feel free to create several budget income categories so you can keep track of each income source independently.
I suggest you adjust your budget amounts for each category after 1-2 months. Once Mint receives a few months of your spending and income data you’ll begin to clearly see your average monthly spending in each category. Armed with this data, you can then begin to adjust your monthly budget for each category. The important thing is to make sure you are spending less than you are earning each month. Make sure the personal budget you create reflects this by having all of your budget expense lines total less than your total income sources.
Step 5: Input Your Goals
You’re almost done. One last thing you want to do is click on the “Goals” link on the top of your dashboard. You will be taken to a page where you can enter the goals you identified in Step 1.
For example, if one of your goals is to pay off some type of debt each month, Mint will prompt you to enter how much you would like to pay off each month. It will then tell you how long it will take to pay off the debt completely, how much interest you will end up paying, and it will even give you advice on how much you can afford to pay off each month. You can easily adjust this amount later. Mint then automatically adds this goal to your monthly budget and adjusts your budget accordingly. How convenient is that!
Step 6: Sit Back & Watch Your Personal Budget Automate Itself
This is my favourite step. Mint will do pretty much everything for you from this point forward. You will have to do a few minutes of expense categorization and you’ll have to occasionally adjust your budget amounts over the first few months but after that your only job is to make sure you follow your monthly budget. You can easily tell if you are following your budget as Mint breaks down each budget category with status bars. They are green if you are within your budget, and they turn red if you go over your budget in any given category.
If your income is greater than expenses: PERFECT. This is where you want to be. Use your monthly surplus to 1) pay off any debt you have 2) if you don’t have any debt, then invest the surplus money or put it towards a new goal that you establish.
If your expenses are greater than your income: You have some decisions to make. Your income only goes so far each month. If you can’t afford everything focus on paying off all credit card debt first. If you want to know why you should avoid credit card debt at all costs, read this article. Other changes you should consider making to reduce your expenses and get out of the red can be found in this article, Eliminate Debt Easily: How To Pay Off Credit Card Debt Quickly, or by trying any of these money-saving hacks.
Who Would Have Thought Budgeting Could Be This Easy
Just by following these 6 easy steps you are closer to financial freedom than 68% of people.
Crazy Hey! I told you financial freedom is closer than you think. If you still don’t believe me read this article, Why You Could Be Rich And Not Even Know It.
Now, if you wisely create a personal budget and you stick to it, you’ll be out of debt in no time and you’ll be even closer to financial freedom. In fact, you’ll be closer to financial freedom than 80% of people.
Feeling motivated? You Should Be! Creating a personal budget and sticking to it are the first two steps to obtaining Financial Freedom and by following these two simple steps you’ll be ahead of most people.
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