Create a Budget and Stick to It
If financial fitness is on your mind, why not take a fresh look at your budget and set some meaningful goals for yourself? A strong budget is the cornerstone of financial wellness. It can be a powerful tool for taking control of your money, reducing your day-to-day stress and getting what you want from life.
The trick is to build a budget you can actually stick to. Here are five tips for creating an effective budget and five more for help sticking with it.
Creating a budget that works for you
Establishing a budget — you decide how you will spend your money each month — doesn’t have to be difficult. Follow these simple steps:
1. Give your budget a structure
Your budget needs to be a working tool, so create it in a form that will be easy for you to use. Some people like using a budgeting app or software program; others use a basic spreadsheet. Choose a format that will encourage you to stay engaged with your budget.
2. Calculate your monthly income
Start by adding up all of the money you bring in each month. Depending on your employment circumstances, that may be as easy as looking at your latest pay stub, or it may entail greater effort. If you have more than one job, for example, you’ll need to add your income figures to get a total. If you are self-employed or work at an hourly job where your income fluctuates, you can calculate a monthly average based on the past three to six months. Always use net income, or take-home pay, rather than gross income for budgeting purposes, since gross pay reflects your earnings before taxes, benefits and other payroll deductions are withheld.
Add income from any other sources — child support, spousal support, government benefits, etc. — to ensure the figure you use includes all of the money you receive each month.
3. Analyze and categorize your monthly expenses and savings
Next, look at your spending over the past few months by reviewing your bank and credit card statements and, if you use cash, receipts. Break your spending down into categories: mortgage or rent, utilities, insurance, household expenses, entertainment, etc. This will help you see where your money is going and where opportunities exist for you to improve your spending habits.
Categorize your savings, too, to include your emergency fund, retirement savings and any other short- or long-term savings goals you’ve set for yourself. Remember that saving is not an optional line item on your budget. Planning for emergencies, retirement and other savings goals is critical to your long-term financial success.
4. Set realistic goals
Now think about what you would like to achieve with your money, and write down your goals in order of priority. These might include no longer living paycheck-to-paycheck, buying a house, taking a vacation, paying off debt, retiring with a certain lifestyle, etc. Do some calculations to see what it will take to achieve your goals and then build them into your budget. Be patient with yourself: It may take some time to get where you want to be in terms of saving for all of these goals. Aim for steady progress!
5. Decide how you will manage your money
Once you can see the big picture, think about how you can manage your money to fulfill your obligations and reach your goals. You may want to explore using an established budgeting method (there are many examples online) to put some guidelines around your money management efforts.
One of those methods, the 50/30/20 plan, suggests allocating 50% of your budget to needs, such as mortgage or rent, utilities and groceries; 30% for wants, such as dining out and buying clothes; and 20% for savings and debt repayment. You may want to adjust these percentages to better align with your goals. For example, if you’re saving for a large purchase, you may decide to cut discretionary spending (wants) to 25% and put the remaining 5% in savings.
Sticking with your budget
Sticking with your budget doesn’t have to be difficult. These tips may help keep you on the right path:
1. Track your spending
A budget only works if you keep it current. That means tracking your spending so you can make sure it aligns with your budget figures. An app or software program that tracks and categorizes your spending may be helpful. Your bank may offer tools as well. For example, in addition to other features, Dollar Bank’s Online Banking and mobile app let you view your account activity and balances, and set alerts to let you know when you are close to the budget limits you preset for yourself.
2. Automate bill payments and savings
The easier you make your money management, the easier it will be to stay on track. Consider setting up automatic deposits to your savings accounts so that you are “paying yourself first” — prioritizing savings by tucking a set amount of money away each week, paycheck or month, so that you don’t have the temptation to spend it. Automating your payments can help, too. Check into the availability of online bill pay with your bank.
3. Review and adjust your budget regularly
Income, expenses and priorities change, so visit your budget often — at least monthly — and adjust it as needed. Make sure it continues to reflect all of your financial obligations, as well as your spending and savings goals. Don’t get discouraged if you have an off month or if you’re not achieving your goals as quickly as you’d like. Financial fitness is a work in progress. Stay committed and you’ll get there!
4. Avoid temptation
We’ve all felt the rush of buying something in the moment, but those moments should be the exception, not the rule. Shop with a list and don’t deviate from it. Block online ads that urge you to spend. Don’t be taken in by discounts on products or services you don’t need. In other words, avoid situations that tempt you to stray from your budget.
5. Motivate yourself by keeping your goals top of mind
Momentum is key to achieving your financial fitness goals. Keep your eyes on the prize (literally) by placing photos of your dream house or vacation experience where you can see them, or just refer to your goals list each time you check in on your budget. Goals remind you why budgeting is worth the effort.
Once you get in the right mindset, upholding your financial goals will become your priority, and healthy financial habits become second nature. Stay committed, work your budget and make your financial dreams come true.
If you have budget-related questions or you’d like a financial check-up to make sure your accounts are supporting your financial goals, feel free to call a Dollar Bank banking expert at 1-800-242-2265 or visit your local branch.
This article is for general information purposes only and is not intended to provide legal, tax, accounting or financial advice. Any reliance on the information herein is solely and exclusively at your own risk and you are urged to do your own independent research. To the extent information herein references an outside resource or Internet site, Dollar Bank is not responsible for information, products or services obtained from outside sources and Dollar Bank will not be liable for any damages that may result from your access to outside resources. As always, please consult your own counsel, accountant, or other advisor regarding your specific situation.
Posted: January 20, 2023