Therese’s passion for personal finance began during her first financial literacy program in 5th grade. Ever since, she has honed in her skillsets with a bachelors degree in finance from the University of Maryland, self study, research, and volunteering with nonprofit organizations that focus on mentorship and financial literacy for children. Her mantra is to focus on the individual because all of our journeys are unique which requires nuanced advise. She teaches good habits that elicit mindset changes that gives richness to your personal finances and other aspects of your life.
Budgeting can mean a lot of different things to various people, and for some it can be a scary word. How does one budget, why do we budget – when it comes to the topic of budgets, there seem to be many questions and very few answers. Budgets can be easy to create, but hard to follow so building one that is sustainable and informative will allow you to achieve all of your short- and long-term goals. Not all budgets are created equal, and having a budget doesn’t mean your money worries will vanish. What a budget can do is help you identify areas of improvement or gaps that may be keeping you from reaching financial security, and to act as a tool in helping you create a game plan.
Part I will go over what I like to call the “top-down” budget approach. This style is most applicable to those who have a steady monthly income. This could be from SSI, a salaried job or one with more permanent hours. Basically, if you can count on a certain amount every month, this is probably the budget approach for you.
Throughout this article we will be using the analogy of a tank of gas. Why a tank of gas…you ask? A tank of gas is a tool that allows you to get to your destination or achieve your goals, just as a budget should help you along your path towards financial security. Like a tank of gas, this budget has a maximum capacity, represented by your monthly income or inflow of money, and when it is empty (or even negative) it can leave you stranded and having to struggle to get to where you’re going. If you have ever had to walk back to the nearest gas station to fill up a portable gallon of gas, you get the imagery.
So, when it comes to creating a budget, first you want to think about what is “full” for you. For most this amount would be your monthly income – we will call that your “tank at 100%”. With each expense or bill you accumulate, it eats away at your gas. Some expenses help you along your journey more than others, so each expense should be examined and determine if using that amount of gas is “worth it”. For example, an educational expense might certify you with a skill that allows you to earn a higher income at your job. This is a near-term expense (“use” of gas) that grows your tank over time. If an expense takes up too much gas and doesn’t strike you as being “worth it”, it might be time to see if you can lessen the bill (this may require additional time and effort, but typically is very much worth the look) or canceling it outright. Try looking at this article from NerdWallet on how to lower your monthly cell phone bill, or this article with a number of suggestions on ways to reduce monthly expenses.
After running up your tally for the month, how much gas do you have left? If you still have some gas left over, congratulations! Your budget and expenses are within range (a balanced budget) and this is an amazing feat many people never accomplish. In subsequent articles, we will talk about what that means and what you can accomplish and address with this surplus of cash. But what if you find yourself in the negative territory? Well that just means you need to run this exercise again and figure out how that gap can be reduced. For many, it is not a simple solution, but one necessary to be in control of your financial destiny. As we discuss in the High Water Women Financial Literacy course on Budgeting, it is often much easier in the near-term to reduce your monthly expenses than it is to quickly grow your income – just as it would be easier as a driver to figure out a route that uses less gas than it is to swap out a larger gasoline tank in your car. That said, it is often worthwhile to pursue avenues that will grow your income over time – even if not as a short-term solution – as this is will help you maintain a balanced budget in the long-term.
Increase your income
Decrease your expenses
High Water Women Financial Literacy Curriculum
We’ve used this simple model to give you a new way of thinking of what it means to be financially independent, but due to the complex nature of personal finance, there are many nuances that we will continue unpacking in Part II to give you all the information you need to achieve all of your short and long term goals!