Creating a monthly budget. While you may not currently jump for joy when you read those words, budgeting can expand your financial horizons far beyond what you think is possible.
Budgeting is when you allocate funds to specific areas of spending. It is a practice that keeps you financially responsible, prepares you for the future, and helps you save money so you can accomplish your goals.
Let’s look at a few easy steps you can take to establish your monthly budget.
- Identify how much money you make each month (monthly net income)
This may seem like a no-brainer, but you are going to need to know how much money you make in a month so you can distribute those funds throughout your budget.
- Calculate your fixed and variable expenses
Expenses. These are all of the things that you pay for each month, taking away from that net income you get on payday. This step tells us where your money is going on a monthly basis. Pro tip: check back on your credit card statements to get an accurate depiction of your spending habits!
Fixed expenses are the monthly bills you pay regularly. Examples include rent, utilities, car payments, etc.
Variable expenses are a bit more flexible and may change from month to month. This includes things like entertainment, groceries, or anything you buy from a store.
Add the two together to get your total expenses for the month.
- Subtract monthly expenses (step 2) from your total monthly income (step 1)
Time to find out if our spending habits have a good relationship with the amount of money we are bringing in each month. The goal is to have a positive number remaining after the subtraction. If it’s negative, you’re spending more money than you have available to spend.
- Adjust your budget
Okay, you did step three and now you’re staring at a negative number. Dang it. What now? Time to adjust your budget. Prioritize your needs first (ex: rent) and then allocate funds to your wants (ex: going to the movies). Create a blueprint for financial success that you can stick to and follow.
Let’s say you did step three and you have $50 remaining. Great, so you have $50 to splurge on during your next shopping spree! Right? Not so fast! Consider putting that money into a savings account or emergency fund. Or what about paying off those student loans? Make the most of your money and prepare for the future by setting realistic financial goals and investing in them each month.
- Track your spending
Don’t fall into the trap of making a budget and then never looking at it again until it’s the end of the month and you’re wondering why your wallet is empty. There are plenty of budgeting apps out there that can help you stay on top of tracking your spending. Examples include Mint, EveryDollar, and YNAB. All of which happen to be free! Yay!
- Check back in regularly
Change is a natural part of life. As circumstances change, your budget will as well. Make sure you’re checking in on your budget so you can continue to stay on track with your goals. Adjust if necessary!
Struggling with your budget?
1166 FCU provides financial guidance for all of its members. Talk to our team members about budgeting strategies and practices that work best for you.