Make a budget work for you

A budget is a great tool for taking control of your finances. And like any good tool, the more you use it the easier it gets. The only way it doesn't work is if you leave it on the shelf.

So, how do you create a successful budget?

1.       Write down your savings goal, whether it’s short-term, like summer vacation money, or long-term, like retirement. Be as specific as you can. It’s much easier to know if you’re headed in the right direction if you know exactly where you’re going.

2.       Plan your budget based on your net monthly income—the amount of your actual pay check—rather than your hourly wage or annual salary. If you get paid biweekly with taxes taken out, take your paycheck amount x 2.16 to find your monthly net income.

3.       Get a realistic picture of your expenses by keeping track of everything you spend in a month. Some people keep a notebook, some collect receipts, some use their online banking records. The key is not to let anything slip through the cracks, including those little cash purchases.

4.       Sort your expenses into categories that make sense to you: groceries, rent, entertainment, etc. You can find many different sample budgets online—find one with categories that fit the way you spend money and don’t be afraid to tweak it. If fly fishing, for example, is something you regularly spend money on it might make sense to give that its own category. At the top of your list, add a category for your savings goal if don’t already have one.

5.       Identify which categories are fixed and which are variable. Fixed means the amount doesn’t change much from month to month, and don’t have much flexibility. This will probably include things like rent, loan payments, cable, etc. Variable expenses are those things that can change from month to month, such as groceries, clothes and gifts. This step helps you see where you could most easily make changes if needed.

6.       Add a fixed category for your savings goal at the top of your list. Even if you plan to start small, saving only a few dollars a month, make it as high-priority in your budget as rent. Commit to “paying” your savings account before paying any other bill. This is called “Paying Yourself First,” and it is an essential habit to reaching your goal and becoming financially secure.

7.       Evaluate—any surprises? Are you spending more than you make? Does the amount you spend in each category match up with how important that category is to you? What could you change to make more room to save for your goal? Pick a few changes you can try for next month to bring your actual spending more in line with your budget.

8.       Continue to refine your budget from month to month to achieve a balance between the amount you budgeted and the actual amount spent. Keeping it updated and realistic will help keep you on track to reach your goals!

Tips for Success

·                Get the whole family involved in spending decisions. Decide who will pay the bills and who will keep the budget updated.

·                Make the budgeting/tracking process as easy as possible while keeping your records safe.

·                Make it a habit! A good Pay Yourself First goal is to try to save at least 10% of your income. You can start small and work your way up to 10% over time by saving systematically and consistently every month. (Using direct deposit from your work is a great tool to help you save!) When it becomes a habit, you don’t have to think twice about it, and it becomes easier to find ways to make it work.

·                Think about time vs. cost to evaluate your spending options. What do you actually make per hour after taxes? If you take home $8.00/hr (net) and you want to buy something that costs $24.00, you will need to work 3 hours to pay for that item; so is that item worth 3 hours of your time?

·                If you have a lot of high-interest debt, it might make more sense for you to focus on paying down your debt first. (And avoid getting into more!) Then, when the loan or credit card is paid off, you can switch the amount you were spending on debt payments to your savings account and start painlessly building savings!

·                Remember to include savings for a rainy day. It may not sound exciting, but this can be one of the best investments you make if it allows you to avoid high-interest debt down the road. (Ex: If you own your home, do you have back-up money for maintenance and repairs? What if your car breaks down?)

·                Creating an effective budget takes time, so it will take you time to find the right numbers for you but be persistent and you will see the results!

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