Have you ever run out of money before the end of the month? By following a budget, you’ll know where your money is going instead of wondering where it went. And it will help you reach your short- and long-term financial goals. Here’s how to get started.
List Your Expenses
Before you can create a budget, get a feel for how you’ve been spending money. There are a couple of ways to do this:
- On the first day of the month, start asking for a receipt for everything you buy. At the end of the month, you’ll be able to clearly see where your money is going.
- Pull your bank account and credit card statements for the past six months to get an average of what you’ve been spending per month.
Factor in the unexpected and those expenses that aren’t paid monthly—holiday gifts, birthday gifts and parties, annual vehicle registrations, property taxes, vacations, doctor visits, and subscriptions you pay annually.
Figure Out Your Income
For your budget, use net income—the money remaining after taxes and other deductions are taken out of your paycheck. If your income varies, calculate an average base amount.
Now, subtract your total expenses from your total monthly income. If you have money left over, congratulations, you’re in good shape! If not, it’s time to make some tough decisions about where to cut back. A clear set of goals can help.
Set Budget Goals
At the most basic level, it’s good to know where your money is going and that you’re not spending more than you earn. But having a more specific “why” for you and your family can be good motivation to stick to a budget. From saving for emergencies to getting out of debt to avoiding fights about money, your “why” will be unique to you.
Be specific with your goals and set deadlines, for example: Save $100,000 for a down payment in three years.
Decide on a Budgeting Method
A common method of budgeting is the 50-30-20 rule, which recommends that you spend 50% of income on needs, 30% on wants, and 20% on savings or debts. Examples of needs are housing, groceries, utilities, and transportation. Wants include clothing, hobbies, eating out, or a gym membership.
With a zero-based budget, every dollar you earn is assigned to a budget category, whether it’s an expense or savings. Your budget always equals zero.
The envelope system assigns an envelope for each budget category. The envelope holds the amount of cash budgeted to that category and any receipts for those expenses. When the cash is gone, you have no more money to spend in that category.
There are many ways to track your expenses. The best is the one that works for you.
- Notebook and pencil. Recording expenses in a notebook is the most hands-on method. Be sure to enter expenses immediately so you don’t forget!
- Spreadsheet. A spreadsheet can do the math for you. There are sample budgeting spreadsheets online with the formulas built in, or you can build one on your own.
- Free online software or app. Using technology that can be customized or even linked to your accounts can help you stay on top of your spending and saving.
- Money Management: This tool in Online Banking gives you the ability to monitor all your bank accounts in one convenient place—even accounts at other financial institutions. State-of-the-art budgeting features help you track spending, auto-categorizing transactions so you can visualize your spending over time and change behaviors to meet financial goals.
Stick to Your Budget
Creating a budget is a big first step; now you have to stick to it! Each month, take time to compare what you actually spent to what you outlined in the budget. You may need to make adjustments based on whether you overspent or had extra money left over.
Finally, be realistic. Life happens—you’ll break your budget now and then. Make tweaks and update your budget as needed.