Happy Financial Literacy Month! At the Financial Gym, one of our core values is “gymsplaining.” We take seemingly complicated financial topics and break them down in a way that people without a finance degree can understand. Because most people don’t get a financial education at school or from their families, many clients come to us with the goal of increasing their financial literacy.
But what is financial literacy and why is it important? At its core, financial literacy is the ability to understand the impact of your financial decisions. It gives you the confidence to evaluate your options and choose the best course of action for yourself.
This month, we’re bringing you bite-sized servings of financial literacy. Each week, we’ll introduce you to a core concept and map out a fun and easy daily action item.
First up: budgeting! Many people shudder when they hear that word because they associate it with having to say no to things they want. But every line item of your budget is something you are saying yes to. Some of these expenses might feel mundane (yes to rent, utilities, insurance, and groceries) while others are more exciting (yes to dining out with friends, travel, and shopping).
The key to budgeting is getting a handle on your cash flow — money coming in versus money going out. Here’s how to get started:
Money coming in: Do you know much you make each month off the top of your head? If not, don’t worry! A lot of people don’t. To find it, take a look at your paystubs for the previous month. If you’re a freelancer or gig economy worker, calculate your average income for the past 3-6 months.
Money going out: Look through your checking account and credit card transactions. What bills do you have on a recurring basis? These are your “fixed expenses” and will make up the foundation of your budget. Search for other categories of spending: groceries, dining out, entertainment, retail, pets, kids, home supplies, etc. These are your “variable expenses.” Calculate exactly how much you spent in these different categories over the past month.
Evaluate what you’ve found: Are your expenses higher than your income? Do your variable expenses align with how you want to be spending your money? Is there anything that you’d like to be spending your money on or saving for that you aren’t currently?
Create a plan: Set target amounts that you’d like to save and spend on your variable expenses. You can create detailed categories but you don’t need to — broad categories work just as well if not better. Make sure the total of your fixed expenses, variable expenses, and savings doesn’t exceed your income. Voila, you have a budget!
To keep learning more about budgeting, here is your financial literacy “homework” for the week:
Saturday: You read this blog post — you’re done for the day!
Sunday: Have you ever overspent? TFG trainers can sympathize. Listen to Overspending in Your 20s with Kadri and Gus and hear what they learned from it.
Monday: What is the best budgeting technique? The one that you actually use! Read 5 Budgeting Strategies to Get Your Finances Back on Track.
Tuesday: Everyone needs to budget for food and meal prepping can help control your costs. Listed to Meal Prepping with Victoria and Claire.
Wednesday: Practice multiple budgeting methods with this worksheet.
Thursday: The work doesn’t stop once you create your budget. You also need to track your expenses to see how you did. Read 7 Trainer Recommended Weekly Spend Tracking Techniques.
Join us next week for an introduction to savings!
Financial Literacy Month: Introduction to Budgeting is written by Kylie Lipinski, A Certified Financial Trainer for financialgym.com