Finances need tending, just like a garden does. When you picture a garden from the beginning, you can image a simple plot of land or a variety of empty containers. There’s not much there, so a lot of work has to be done. By starting to envision your financial garden like a traditional garden, you can get a better picture of the work you need to do in order for it to flourish.
Step 1 - Planning
Before any successful garden starts, a plan needs to be in place. How many plants do you want to have and what types of flowers or vegetables do you want to grow? Finances are no different. Take some time to write down ideas and goals of what you want to accomplish. You may need to start an emergency fund, save for a major purchase, or want to increase the amount you put into your retirement fund by 1% each year. Doing this works better when you have measurable goals that list out specific dollar amounts and the timeframe you want to accomplish them in. Examples of measurable goals can be:
- Paying off $7,000 of credit card debt in two years
- Having a $1,000 emergency fund in place within six months
- Increasing the amount you put into your retirement plan by 1% yearly, by the following December
- Opening a 529 college savings account within three months with automatic contributions of $75
To figure out just how much you’ll need in the specified timeframe, just divide the dollar amount with the number of months you’ve given yourself to accomplish your goal. So to have a $1,000 emergency fund in six months, you’ll need to put aside $167 each month. If your goal is to open some type of new account, you’ll need to decide who you want to open the account with and have any information you’ll need prior to your deadline.
Step 2 - Don’t Forget the Water
Before you start a budget, you need to have a clear picture of your monthly income. You need to include how much you get from your paycheck each pay period (the net amount you bring home, not the gross amount before taxes and other deductions) and any other income source.
Step 3 - Tend Your Garden
Plants grow better when weeds aren’t trying to push them out and take their water supply. Monthly expenses are a lot like weeds, you need to control them in order to cultivate the best financial garden possible. Figure out monthly expenses by adding up each main spending category, including:
- Rent or mortgage
- Car payments
- Student loan payment
- All credit card payments
- Utility payments (electricity/gas/water/trash)
- Home and car insurance
- Cell phone bills
- Cable/internet/streaming services
- Entertainment and eating out
It’s also good to include expenses that might come up during the month, such as medical co-pays or dental work, pet expenses, birthdays, or subscriptions. If you’re starting from scratch, grab the last three months of your bank and credit card statements and look at them. They can give you a better idea of what you spend, where, and how frequently.
Step 4 - Know the Soil Quality
To do your budget, add up your monthly expenses from Step 3 and then include the goals you want to accomplish from Step 1. From that number, subtract the total from your income which you figured out in Step 2. If the number you come up with is positive, you have a budget you can work with. Let’s look at a sample budget:
Monthly financial goals
Once you know how much you have left over, you can add to your goals or accelerate your goal timeframe. If your sample budget leaves you in the negative, you have some work ahead of you. Continue to Step 5.
Step 5 - Consider Using a Vitamin Solution or Compost
Your financial garden may need a little boost if your sample budget was in the negative. To start, look closely at the numbers again. Did you overestimate any categories? What in your budget can you decrease or even cut out? To make financial progress, you may have to cut out everything but the necessities, find ways to boost your income, or you might need to increase the time it takes to reach your financial goals.
Step 6 - Polish Up Your Green Thumb
As you continue to learn more about saving and investing, reaching your goals can be simple. Remember to envision what your garden will look like after you’ve put in the time and work. Being able to imagine your final, beautifully tended financial garden can help you to stay focused over the long haul.