Making a monthly budget is an important step if you want to take control of your finances. Some people feel that budgeting is synonymous with Friday nights at home scrolling through Instagram and seeing all of the parties and good food that you’re missing. But a good budget should serve as a tool to help you reach your goals and live the life you want.
With rising fears around the economy and the coronavirus pandemic, another good reason to budget is the potential to actively build your emergency savings. The last Federal Reserve report on the economic well-being of US households found that 27 percent of adults would have to borrow money or sell something to cover an unexpected expense of $400. 1 Another 12 percent wouldn’t be able to cover the expense at all.1 So what happens if the car breaks down or the furnace won’t turn on? Having an emergency fund could help you avoid the stress of these scary situations.
We have a few great tips to help you start a budget and find success.
Why Do I Need A Budget?
You need to know where your money is going. Without a budget, you may be spending more than you make without even realizing it. The process of visually seeing where your money is going each month will help you identify specific areas where you’re spending too much. Tracking your spending and income could help you find new ways to save money.
Taking control of your money can also help alleviate worry and stress. A 2019 Gallup poll revealed that 62 percent of Americans worry about money all, most, or some of the time.2 While we’re all going to worry about our finances at some point or another, some of this worry can be reduced by simply being aware of our situation.
How Do I Start A Budget?
The hardest part of any budget is just getting started. Your first budget may take some dedication. However, this process will get easier and easier each month as you start to see patterns in your spending and learn to plan for upcoming expenses.
Justin B. of our Financial Life Planning team offers a simple suggestion for getting started: “Start at the beginning of the month and decide where your money should go. Don’t wait until the end of the month and then have to make hard choices on which bills you can and cannot pay.”
To get started, you need to figure out your monthly income first. Some people like to use their gross income (before taxes and other deductions come out) while others prefer to use their net income, as it is a more accurate representation of how much you can spend.
Next, categorize the things you spend your money on: Food, housing, utilities, gas, clothing, entertainment, tuition, childcare, pets, insurance, loan payments, etc. Don’t forget to leave a category for saving and building your emergency fund.
Now that you have your categories, you’re going to ‘spend’ your income and assign a dollar amount to each category. This may take a little research on your part, so you know exactly how much to put into each group. If some of your spending varies each month (like the amount of your utility bills), find the average of the past few months.
“Creating a budget is only scary until you start,” says Justin. “The more you do it, the more comfortable you’ll become with it.”
There are many great budgeting apps available to help you keep track of your spending, including the budgeting tool in Online Banking. If you don’t use Online Banking, you should sign up. Or if you prefer pen and paper, download our budgeting worksheet.
What If I Have a Variable Income?
Look back at your best and worst month for income. Find the average and use that figure to create your budget. Then, create a ‘sinking fund’ in a separate savings account. When you have a month with more income than you planned, put the excess funds in this account. If you have a month where your pay is lower than you planned, you can pull money from the sinking fund to supplement the variance in income.
Can I Still Have Fun On A Budget?
Of course, you can still have fun! You’re just going to decide how much fun you’re going to have when you make your budget at the beginning of the month. With funds already allocated for your adventure, you won’t have to feel guilty for spending money on a shopping trip.
I Can’t Seem To Stick To My Budget. Now What?
Remember, your budget should be an accurate reflection of your lifestyle and your long-term goals. If your budget isn’t working, you might need to adjust the amount you have planned in each category. If you notice that you’re over-spending in dining but you have leftover money in your grocery category each month, then budget less money for groceries next month. Of course, if you’re overspending in both categories, try meal planning, eating at home more, or find ideas on how to save money while grocery shopping.
Use cash if you’re losing track of your spending. If you need to, visit an ATM to take out cash and divide the money into labeled envelopes for each budgeted category. When the cash is gone from one envelope, you’ll visually see that you’re done spending in that category.
Here To Help
Our Financial Life Planning team is here to help you create a budget and review your financial goals. Make an appointment or reach out to us if you need help.
There’s no time like the present, so get started on your budget today!