In How to Create a Spending Plan (or Budget) I discussed the importance of having a spending plan to know where your money is going and avoid unnecessary stress. If you don’t have a plan you will not have money left over for emergencies, special purchases, or holidays.
The first two steps of creating a spending plan is to find out how much you earn and tracking your expenses. Now here are the next three steps.
Figure out the difference:
Now, find out the difference between what you spend and what you earn each month. If you have a surplus, a portion of that should be allotted for investments or savings. If you have a shortage, you have one of two choices to solve your spending plan woes: lower your expenses or increase your income. You may even want to do both.
Lower your expenses:
Lowering your expenses is the most obvious way to solve a discrepancy between your income and your spending. Simple changes made over time, such as renting a video instead of going to the movie theatre, can add up to big dollars in your bank account. Others may be lifestyle changes, such as giving up one car and taking public transportation instead.
Increase your income:
Increasing your income may not be such an obvious way to solve your shortage problem but it can be a very easy and freeing way to work out your money woes. Increasing your income could be as simple as working extra hours if you are an hourly employee. You may also find extra work within the same company on weekends or in a different division. Ask your human resources office about any opportunities.
To make extra money you can turn your hobbies and skills into extra revenue. Take an inventory of what you love to do and find a way to make the extra money. You can also sell things you don’t need and put the money in a special savings account. Take it to another level and buy yard sale items to sell in an online auction.
Taking control of your finances by setting up a household spending plan is an important first step to creating wealth. As you begin to make wise decisions about where your money goes, over time you will find opportunities to spend less and have more money to invest.