Just the act of creating a budget puts you ahead of the game by presenting a clear snapshot of your overall financial situation. Once in effect, a sound financial plan lets you live well within your means while preparing for future goals.
How to Set Up a Budget:
Begin by totaling all income from wages, investments and other sources. Next add up your living expenses, including housing costs, food, utilities, insurance and transportation. Don’t forget to factor in what you normally spend on entertainment and incidentals. Finally, subtract your total expenses from income to see where you stand.
A good surplus means you’re ready to firm up your plan. If you’re just squeezing by, or if expenses actually exceed income, some adjustments may be necessary. Consider reducing expenses by cutting back on restaurant meals and entertainment or perhaps even trading down to a smaller car or home. Another approach is to increase income by picking up extra work hours or landing a better-paying job.
Take things up a notch
When fine-tuning your budget plan and budget goals, it helps to write down long- and short-term goals, and then open specific accounts earmarked for particular savings goals.
Traditional savings and money market accounts can be well-suited for building emergency funds that can be used at a moment’s notice, whereas IRAs, Coverdell Education Savings accounts, and Certificates of Deposit can be better for accumulating funds for longer-term objectives like retirement, education and amassing a home down payment. When preparing for more-immediate goals, such as vacations or holiday gifts, club accounts may provide a convenient option.
To maximize budget effectiveness:
- Keep records of cash spending to determine where you can cut back.
- Set up an automatic savings plan for at least 10% of your income.
- Create goals that are specific, realistic and rewarding.
- Monitor your credit history and score.
- If debt from multiple sources is overwhelming, explore debt-consolidation financing.
- To improve cash flow, budget on a monthly or weekly basis, not annually.
- Open a separate email account for bills, financial alerts and related correspondence.
Gain a technological advantage
These days budgeting is much more user-friendly than in years past thanks to remote banking advances and free money-management programs that let users check balances, make transactions, track spending and manage it all online or on a smartphone or mobile device.
Financial institutions like First Alliance Credit Union can help show you how to set up a budget and make your budget successful through secure remote-banking capabilities as well as with a variety of effective savings and debt consolidation options.
Getting on a budget transforms aspirations into workable goals that can become future reality. Meanwhile, setting up a workable plan can give you some immediate peace of mind knowing your finances are moving in the right direction.
Content provided by Roberta Pescow, NerdWallet