Your budget holds your savings plan together and is the key to maintaining healthy savings. A budget also shows you where your money is going every month so that you can ensure you are bringing in more than is going out and saving enough to meet your goals.
4 Steps to Creating a Budget and Sticking to It
- Track where your money goes ─ If you don’t know already, it may take three to four months for you to get really good idea of where you spend money and how much you spend. You can track your expenses using your bank statements, receipts, or logging it into a journal or smartphone app. Add up the total for each month and then average it out. For example, if you spent $200 on groceries one month, $300 the next, and $250 the next, your average would be about $250 a month. That gives you a good base to start building a budget you can stick to.
- Put your budget on paper ─ Once you’ve tracked your expenses, use a spreadsheet or online/mobile application to put your budget on paper. In the expenses column, include all expenses: groceries, gas, housing, clothing, entertainment, gifts, and so on. If you spent money on it, it should be in your budget. In another column, input your income. If you have a salary, you can input how much you receive each paycheck; but if your income varies, you can use the average of the last three months. Subtract your expenses from you income to see how much money you have left every month. If you have a negative number, you know you need to make some changes in your budget. If you have a positive number, that can be the amount of money you save each month.
- Keep looking fro ways to increase your savings ─ Almost all expenditure categories offer potential for savings. With essential expenses with fixed amounts, such as your mortgage, taxes, and insurance, you may be able to refinance your mortgage, find strategies to help reduce taxes, or comparison shop your insurance to reduce premiums. Essential expenses that vary in amount, such as food, medical care, and utilities, can usually be reduced by altering your spending or living habits. For instance, you can actively shop for food with coupons, exercise to get in better health, or use energy-saving light bulbs through your house. Discretionary expenses, such as entertainment, dining out, clothing, travel, and charitable contributions, typically offer the most potential for spending reductions. Dining out four times a week? Reduce it to two; go to less-expensive restaurants, and save the difference.
- Reevaluate ─ It is critical to reevaluate your budget after the first few months to ensure that it fits your needs and goals. If you find that you are continuously spending more money than budgeted for necessities such as gas, groceries, or school supplies, adjust your budget. Once you get past the first few months with a new budget, reevaluate every six months or as needed. Anytime your income changes, adjust your budget. Anytime you add or get rid of an expense, adjust your budget.
Having a budget is key to saving money. Without one, it is easy to spend money blindly. A pair of shoes here, a power tool there, a toy for your child ─ it all adds up. If you don’t decide where to spend your money and how much to spend each month, chances are you will not be saving. Please call if you’d like to discuss this in more detail.
Copyright © Integrated Concepts 2012. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material