How to Create A Basic Budget
Creating a budget is the most effective way to manage your finances—which is why it’s pretty startling to learn that more than half of all Americans don’t have one.
A successful budget is impossible without understanding the fundamental need for one. When you have a budget, you plan how you will allocate every dollar of your income.
Know your goals
Maybe you’re fighting debt; saving for a home; or just trying to make it from one week to the next—whatever your financial goals look like, the basic premise of all financial wellness boils down to this: Don’t spend money you don’t have. The only way to do this successfully is to create a budget and stick to it.
Do the math
I’m going to share what works for me, but please remember that budgets are personal; financial goals are unique to you, so your budget will be, too. If you want advice specific to your situation, please visit your local branch.
- Find your starting number: I start with my take-home pay for the month—this is the number after taxes, insurance and retirement funds have been deducted. Also, this is the only income I can count on; I don’t assume I’ll get a pay raise, find $20 on the sidewalk, or get a birthday check in the mail. That’s my starting number.
- Calculate necessities: From that number, I figure out the sum of my personal essentials: housing, utilities, student loan, gas, insurance, and food. For you, this may include child care, mortgage, auto loan, etc. Some of these—like a utility bill—will be a variable cost, so it can differ each month. Make an educated guess and always err on the side of budgeting too much versus too little! This is also the time when I put a set amount into my savings account.
- Add the extras: Finally, I account for any special monthly expenses I know I’ll have, like birthdays, trips, appointments—whatever I can safely anticipate. Then I divvy up whatever remains into “free” spending money. Be sure to categorize it as specifically as you can. For instance, I’m not a big shopper, so the money allocated for shopping is really small; but I love to get lunch out during the week so my dining out budget is larger.
Track the action
I use a digital spreadsheet with equations to figure the numbers, but once I have them, I use CommunityAmerica’s Money Management tool (available in Online Banking) to track the transactions. You can read more about how that works here. If pen and paper is more your style, check out the budgeting sheets* at the end of this article.
If you’re new to budgeting, you’re not alone. For years, I didn’t have a budget because I assumed if I wasn’t “in the red,” I was financially stable. But the stress I felt with each purchase, wondering if this would be the one to put me over my limit, or the fear of potential emergencies I couldn’t afford were two big indicators that I wasn’t financially stable.
A great place to start is just by observing. Save your receipts for about 30 to 60 days in your normal spending patterns and see where your money goes—a great place to observe this is the Online Banking platform and Money Management tool. Then you can start to figure out where you can be lenient and where you need to tighten the purse strings.