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Financial Planning: Building Your First Budget!
For many men and women who are recently in recovery or finishing treatment, financial concerns can be high. Stresses from debt, or large bills can cause anxiety which leads down a path of negativity. To help you alleviate these worries, it is our goal to navigate you through the basics of financial planning. In doing so, we hope to help our guests build a life of success in sobriety and beyond.
When you think of the words “financial planning”, what are some things that come to mind? You may think that it is a job better left to an accountant or professional, or something that is a best case scenario. It’s possible you may not even know where to begin, or if it is even necessary. Financial planning is something that every household can benefit from, whether you are living paycheck-to-paycheck, or own your own yacht! The good news is, it doesn’t have to be intimidating and it is actually pretty easy.
Today, after we teach you a little more about financial wellness, we’ll talk about creating a household budget. This is typically the first step on the path to financial planning.
What is Financial Planning
Before we start, it’s important to help you understand the scope of what financial planning is and what it includes. According to Nerd Wallet, “a financial plan is a comprehensive picture of your current finances, your financial goals and any strategies you’ve set to achieve those goals.” The overall purpose here is to have a clean picture about your financial health so that you can make good decisions to best set up your future. Through good planning and short term goal setting, you can change a major source of stress into a sigh of relief.
The Basics of Financial Planning
Now that we know what it means to financially plan, the next step is to look through the different elements that go into it. Each one of these steps could have their own article, based on how important and valuable the information is. We will try to keep the information concise and digestible for you, as it can be at times overwhelming. Just remember that when it comes to financial wellness, you treat it just like the health of your body and mind. They all work together to make your life easier and more free of stress! That being said, here are the things you should focus on when looking at your personal finance.
This will be our main focus today, because it is the most important first step. Building out and understanding your budget is the cornerstone of any financial plan. At the core of a budget, you will see what comes in versus what goes out. From a higher level, you’ll have a whole road map of good spending.
- Making Cuts:
Making necessary cuts to your expenses can’t be done until you’ve prepared a thorough budget and have a clear understanding of your own situation. It can sometimes be one of the most difficult steps on this list, because it isn’t easy to change your lifestyle and comforts. However, do you really need to be sending $50 a month on coffee? By making small cuts to the things that are frivolous, you’ll be amazed how you can save money, which in turn allows you to …
- Reduce Debt:
Once you’ve organized your budget, you will be able to see what your debts are. Most commonly, you will see unsecured debt – such as medical bills, credit cards or student loans and secured debt – such as a car payment. You’ll also be to see what is having the largest impact on your paycheck, and what would be the fastest to pay down. Now, after you’ve made your cuts and have freed up some additional money, you can start funneling that into these debts and eliminating them. Again, this is a very simplified look at the process but reducing debt is one of the biggest ways to also reduce stress! The money you can save by paying down larger bills can then be reinvested into …
- Planning for Retirement:
After you have set yourself up for financial success and strength through budgeting, cutting and reducing, you can begin to look at ways to build a retirement plan for a solid financial future. This may seem like a long term goal, but it really doesn’t have to be! Even starting small by opening a savings or long term savings account with your back and making small contributions monthly adds up over time.
Building Your Budget
Now that you know the basics of what a financial plan is for and what is expected, let’s take a deeper dive into the most important first step: building your budget. As you recall, a budget is a look at your expenses and income which will build you a guide on how to improve your overall financial health and wellness. In my opinion, the easiest way to stay organized is with a spreadsheet, but any method is fine if it works for you! What follows is a step-by-step guide that you can use to help you figure out your budget.
- Determine Your Income:
The first thing we need to look at is what is coming IN. When doing so, there are a couple of things to remember. Make sure you are using your “take home pay”, which means your income after taxes. So, if your paycheck every week is $500 after all is said and done, that is the number we are working with. If you are married and doing a household budget, add your spouse’s income in as well. If you have any side income, such as your wife selling beauty products on the side, or your husband doing handywork, these should all be included! Once you have those numbers figured out, we can move on to step two.
- Determine your FIXED expenses:
Expenses are broken up into two different categories. Fixed expenses are the more important of the two, because they are the expenses that are always around the same every month. Fixed expenses include things such as your rent, your car, your utilities or your insurances. It is important to write these down first, since these are expenses you typically cannot cut from, or reduce. Many financial planners also recommend that you add a section to this for your own personal savings, because paying yourself first is a major part of financial wellness! Once you have these items listed and subtracted from your income, we can move on to the next set of expenses.
- Determine your VARIABLE expenses:
Variable expenses are expenses that you can control. This includes things like entertainment, going out, clothing or travel. When you are looking to free up money, here is where you want to make your first few cuts. If you don’t take that yearly vacation, could you put some extra money into eliminating credit card or medical debt, thereby freeing up more money in the long run? If you start cooking at home instead of eating out, will you shave off some expense and be able to pay down your car quicker? Here is where you can make those determinations. Before you make too many cuts, you can figure out how much you need to adjust by…
- Resolving the Numbers:
After everything is laid out, subtract both fixed and variable expenses from your income. If that number is positive, then you are in the black and can figure out what to do with that money and how to make it grow. If it is negative, you are spending more than you make and are in the red. It is crucial to never be in the red, if you can help it. Once you have this final number in front of you, you can start making adjustments and cuts, until you get to a number you are happier with. The final, and arguably most important step is to…
- Stick to the Plan:
This can be challenging, because it is never easy to make large lifestyle changes, but if you can stick to the plan, you will find yourself more organized and moving in a path toward financial freedom and wellness!
There are many tools out there to help you with budgeting and financial planning. In fact, recently there have been a surge of apps you can download right on your phone that can help you track and manage your money! These are a strong help, if you need to stay organized. And of course, always remember that you are not alone. There are many organizations and institutions that can help you if you need to learn more!
Financial wellness may be a new endeavor for you, especially if you or your loved one is in recovery or treatment. If you or someone you know is struggling, please reach out to us at (877)-RECOVERY or 877-732-6837. Our team of addiction specialists make themselves available to take your call 24 hours a day, 7 days a week. Because We Care.