In honor of Financial Literacy Month, we wanted to remind our members of the basics of budgeting. Creating and sticking to a detailed budget are the first steps toward financial health.
Many of us have the best intentions to make a budget but keep procrastinating. While in the meantime we’ll be living paycheck to paycheck. Boost your financial literacy and get your finances under control by creating a budget. Here are a few things to consider to get you started:
Why do you want a budget?
We all have reasons why we feel a budget would benefit us. When you uncover why you need a budget, it’ll be that much easier to put one together. Do one of these reasons ring true to you?
- You need to save more money
- You’re tired of living paycheck to paycheck
- You keep fighting with your partner about money
- You need to get out of debt
- You need to control your spending
- You have some long-term goals you want to reach
What are your spending habits?
It’s time to be honest with yourself and start keeping track of every penny you spend in a month. This includes every cup of coffee and smartphone app. Whether you write it all down or put it in a spreadsheet, this will give you a clear understanding of where your money really goes. Speaking of apps, there are plenty of free apps and websites that will help you track your budget like Mint, Wally and Goodbudget. Look at a few months’ worth of your credit union statements to make sure you’re not missing anything. Take a hard look at the amounts and determine where you can cut back – like those daily/weekly expensive cups of coffee.
What are your surprise expenses?
When we’re putting a budget together, it’s easy to remember the monthly expenses like your mortgage/rent, utilities, groceries, etc. It’s not so easy to remember the once-a-year expenses. Here are a few to remember and add to the budget:
- Property taxes
- Insurance premiums
- Medical and veterinary exams
- Auto inspections and registrations
- Professional dues
What’s your income?
Sure, we all know what our paychecks say. Don’t forget to include money you may earn from any side jobs, alimony, child support, business income or investment income. Add it all together.
What are your goals?
This is the fun part. People are usually saving money for a reason. Make a list of all your short- and long-term goals to remind you of why you’re doing all of this. We have a few goals you might be including:
- Paying off debt
- Buying a home or car
- Creating an emergency fund
- Saving for college
- Saving for retirement
- Saving for vacation or some other big purchase
Prioritize these goals and add any dollar amounts if known.
How much should you save?
Time to do a little math. Once you’ve determined how much is coming in and how much is going out, you get a clearer picture of how much you’ll have left over to save or invest. When you’ve got that bottom-line amount, you can figure out how much you can put aside each month for your goals.
How do I stick to my budget?
Now that you know how much you need to spend and save each month, it’s time to put your budget in motion. There are a few things you can do to make this easier:
- Automate – From autopay to direct deposit, use tools like these to make paying bills and saving money a mindless task.
- Envelopes – Some of us like to go old school and use the envelope system. This means dividing up your cash each month into a series of labeled envelopes. You can only spend the money in the designated envelope for each expense. If you run out of money in an envelope for the month, you’re done spending in that category.
- Track – Tracking your monthly budget isn’t a one-time thing. Keep on top of tracking your income and expenses and make sure you’re not straying from your budget. Make adjustments when necessary.