book.chapter Create a financial plan

To achieve your financial dreams, start by actively managing your budget. First, list all income sources to understand your total earnings. Then, detail every expenditure, including fixed and variable costs, to create a comprehensive outflow list. By documenting each expense monthly, you gain clarity on your spending habits. Next, calculate your actual monthly expenses and subtract them from your income to find your "Beginning Monthly Savings." Don't worry if this number is negative; it's important to know where you stand. Organize your expenses into categories: fixed bills (B), utility bills (UB), and discretionary cash expenses (C). This helps identify areas where you have little to no control (B's), some control (UB's), and high control (C's). If you're spending more on C's, consider cutting back to save more. Look for ways to reduce expenses and boost income, such as minimizing discretionary spending, being mindful of utility usage, and finding additional income sources. Simplify your lifestyle where possible and reassess your savings potential after making changes. To streamline your finances, use two checking and two savings accounts. Deposit all income into the first checking account, then transfer funds to the second for fixed and utility bills. Allocate one savings account for emergencies, covering at least six months of expenses, and another for long-term savings and investments. Finally, automate your financial transactions, including deposits, transfers, and bill payments. Automation ensures consistency and discipline in your financial plan. If possible, split your paycheck deposits across multiple accounts to further simplify the process. As financial educator Tiffany Aliche emphasizes, automation is a reliable tool that helps maintain your budget without the pitfalls of manual management.