Oftentimes, people think that a budget deficit automatically means that they are overspending. You must correctly identify the source of the budget deficit in order to implement the correct solution. A budget deficit can signify that there is not enough income entering the household or that the household is spending too much. Sometimes, the deficit indicates both of these facts.
The basic budget activity can help you diagnose your budget.
Step 1: Use this calculator to subtract your basic monthly expenses from your net (after tax) income. Enter the amount for each expense by using the slider on the left side or entering the number in the right column.
Step 2: Evaluate the results. How much money is left over for saving and to cover nonessential monthly expense? If you have a low or negative number left, then this may mean that there is not enough income coming into your household. You can set goals to increase income.
If you find that your balance is enough to cover your nonessential expenses, then ask yourself a few questions:
- Is this number accurate to my reality?
- Am I able to pay the rest of my expenses comfortably or do I have deficit at the end of the month?
If your balance indicates that you have enough to pay your monthly expenses but you still experience a monthly budget deficit, then you may need to work on reducing your expenses.
Regardless of your findings, you can take a step to make your desired changes a reality. Set goals that areS.M.A.R.T--specific, measurable, achievable, realistic, and timely.
Feel free to share your findings with your Compass coach.