Not only is setting a budget important for your financial well-being, but also for peace of mind. Creating a budget can help you feel more in control of your finances and is an essential step in achieving your short or long-term savings goals.
The overall end goal of budgeting is to spend less money than what you make. Having excess funds gives you the opportunity to put more money into your savings account or accelerate the process of paying off debts such as your mortgage, car, and credit cards.
A budget also helps you answer important questions such as:
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“How do I decide what’s important and where to spend my money?”
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“If my expenses outpace my income, what should I do?”
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“How do I handle unexpected major expenses?”
Here is a strategy that can help you build a personal budget and set you up for financial success:
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Figure out your after-tax income. This is what you bring home after taxes and other deductions are taken out. Using this income will be the most accurate for what you have available to use each month.
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Set your savings goals, both short and long-term. Deciding on what is realistic for you to put away in savings each month is an important step in improving your financial fitness. Saving will prepare you for unforeseen situations and help with making a big purchase such as a home or car.
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Make your plan. Start by dividing your budgets into categories. Some of your expenses will be fixed and will not change from month to month such as a mortgage/rent payment or a car payment while other expenses will vary month to month such as gas and entertainment. For example, if you know you will be traveling more for a particular month, make sure to add more in that category for your budget.
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Track your spending. Keeping record of your spending will make it easier to see what you are purchasing and if you are staying true to your planned budget. Sometimes when we use a credit or debit card, it can be easy to forget how quickly those purchases add up. Writing down your purchases by using a savings journal or keeping receipts will give a visual representation of how much you are actually spending and gives you the ability to adjust your habits during the month, rather than having a surprise budget overage at the end of the month.
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Set yourself up for success. Take advantage of automatic payments as much as possible. Using an automatic payment system makes it easy on your part to get your money where you need it to go. Automatic payments help keep that money out of sight so you don’t mistake it for available funds to spend.
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Personalize your budget to tailor your needs. Each person’s budget is unique to their situation. Not only that, but our own financial situation can change from time to time as income and expenses fluctuate. Therefore, it is important to make sure you are keeping your budget up-to-date and that it fits your own finances.
A budget should be the plan for every dollar you have and will lead the way to financial freedom. A good place to start is by following the 50/30/20 rule. This budget style means that you can spend roughly 50% of your after-tax income on necessities (ex: groceries, housing, utilities, insurance, child care), no more than 30% on wants (ex: eating out, entertainment, shopping), and 20% for savings and debt repayment. If this seems unrealistic, try budgeting for a couple months and see if you are able to discover spending habits that could be hurting your financial fitness and preventing you from the 50/30/20 rule.
At CES, we want our members to succeed and be able to provide them with valuable resources to make sure that happens. To help you start developing your own budget, we have created a monthly budget plan for you to download and print. This budget sheet breaks down some common monthly expenses into categories so you can see where you are spending your money and make adjustments as needed. A monthly savings plan is also included in the download so you can jumpstart your savings goals and have a visual representation of your progress.
Click here to download the budget template.