Have you ever run out of money before the end of the month or before your next paycheck or allowance? Have you gone shopping or out with friends with a pocket full of cash only to wonder what you spent it on when you got home? Most of us have at one time or another.
When you hear the word “budget,” most of us think about the set amount of money we want to spend on vacation, shopping, or going out to dinner. While this is a small idea of budgeting, a budget can be much more than that.
A budget is simply a spending plan. It compares your income with your expenses. This comparison will show you exactly where your money goes as long as you are committed and honest with yourself. A budget does not create itself, it takes time and effort on your part. This effort does not need to be a chore; take a little time and keep track of what you do every day.
Getting Started with Tracking Your Spending
The first part of establishing your budget is to find out where your money goes. Most of us have a daily habit or know someone who does, of making small purchases like grabbing coffee on the way to work, going for a burger at lunch, or even buying a candy bar to get you through the afternoon. These small purchases can add up over the long run.
Look at methods of tracking your spending and decide what works best for you. 3.8 billion people around the world and 81% of American cellphone users have smartphones. The smartphone has become a part of everyday life, and that means you always have a method to track and record your purchases. There are a number of apps available to help you with your budget, or you could even simply use your preinstalled notepad feature to keep track of purchases.
If you are a Service Credit Union member, you can use the Money Management tool located under “More Services” in online banking or under “More” in your mobile app to create and keep track of your budget by category.
By keeping track of your spending for one to three months, you will be able to see where your money goes.
Creating a Budget
Now that you have done the hard part, your budget can be created in three steps.
- List and add up your income and expenses
- Income includes all of the money coming into the household: a regular job, second job, craft or maker projects, etc.
- Expenses are everything you spend to include rent, car expenses, food, savings, etc.
- Look at your expenses
- Are you spending more than you are making?
- Where do you think you can reduce your spending?
- When reducing your spending, don’t cut off your “wants” completely, work it into the budget.
- Finalize your budget
- Make decisions that make sense for you – e.g. rather than eliminating coffee runs altogether, reduce grabbing a fancy coffee to a couple of days, such as Friday for making it to the end of the week or Tuesday for making it through that difficult Monday.
Your budgeting decisions will create new spending habits and alleviate stress because you will know where your money is.
All of this can be very confusing, and trying to figure out what to do next can be discouraging. Once you have laid out your plan, there are several budgeting methods you can use. Since we do not want to eliminate your “wants,” the 50:30:20 method may work for you. This method is designed for you to use 50 percent of your income for expenses, 30 percent to fulfill your wants and 20 percent for savings and debt. You may have to adjust the percentage allocated for expenses especially if you place some debt such as credit card and other loan payments in the expenses percentage and have savings as its own percentage category.
When you get into the rhythm of your new spending habits and following your budget, revisit the budget regularly and make sure no adjustments are needed. Remember to stay focused on your budget and if you have a pay adjustment, decide what is the best way the money can help you; whether it’s putting it toward your debt or building up your savings.
Budgeting takes some work and discipline, and you will probably have some “bumps” along the way. Your budgeting journey will be difficult at first and it is fine to ask for help. There are many resources to keep you going and you should find what works best for you. If you hit that stumbling block, check out Service Credit Union’s Financial Education Center.