Build a Better Budget

The word “budget” can be seen as negative and restrictive, much the same way the word “diet” is. But really, a budget can be freeing by allowing you to take control of your financial situation.

Benefits of a budget:

Keeps track of where your money goes
Identifies potential savings opportunities
Maximizes income through selective spending
Helps you reach your financial and lifestyle goals
Offers you peace of mind knowing you are in control of your money, not the other way around

The key to successful budgeting is honesty. Being honest with yourself about how much income you truly have, and how you actually spend your money, is the only way to make a budget work for you. You need to track every expense, the way a dieter needs to track every calorie.

There are several methods for creating and tracking a budget: good, old-fashioned pencil and paper, a computer spreadsheet, or find an online budgeting tool or app. Whatever option you choose, the basic process of developing a budget is the same. Start by gathering your financial statements, bills, paystubs, loan statements, investment statements, etc., then follow these steps:

Income

This is money coming into your budget. It may come from a routine paycheck. You may be paid on a less-regular schedule; if this is the case, add up your income from the last year and divide by 12 to determine a monthly income for your budget. Be sure to include income from other sources like investments, social security, commissions, etc. If you don’t have a regular income, be sure to account for it by setting aside extra in the months when you make more to cover you in the months you make less.

Expenses

Review your financial documents and break your expenses into categories. It’s good to have detailed categories to ensure you account for all of your spending. When reviewing and creating your spending categories, think about non-routine expenses. For example, you may only have medical expenses a few times per year, but you never really know when they might occur. Setting money aside for them each month ensures you have enough to cover the expenses when they come. Some common spending categories are:

Mortgage/rent
Car payments
Groceries
Credit cards
Insurance
Utilities
Entertainment/Dining out
Cash allowance

Creating a budget

As you review your spending categories, determine which are fixed expenses and which are variable expenses. Examples of fixed expenses include: mortgage/rent, car payments, and insurance. Variable expenses are what you have a little more control over: groceries, entertainment, gas, and gifts. Create your budget by entering the fixed expenses first, then distributing the remaining income into the variable categories, including how much you want dispersed into a savings or investment account.

Totals

Add up your income and deduct your expenses. Ideally, you’ll have income “left over.” If this is the case, use that “leftover” to pay down debt, build an emergency fund, or save for retirement. If your expenses are greater than your income, it’s time to reassess your budget. You must cover your basics: food, clothing, and shelter. After that, it’s time to make some hard choices and get really honest with yourself about how you’re spending your money. You will have to cut back in some areas – Entertainment and Dining Out are usually good places to start.

Analyzing

This is the fun part; you get to see how taking control of your finances is paying off. Be sure you are accurately and consistently entering your spending into your budget throughout the month. Review your budget monthly and make adjustments as necessary keeping in mind that sometimes emergencies may set you a bit off track. The goal is to get back to the budget as quickly as you can. As you begin to review your finances regularly, you will find adjustments and savings that will help you manage your money more effectively.

Budgeting takes a small bit of your time in tracking and analyzing your income and expenses, but pays off in big dividends that come from the peace of mind you feel knowing you are in control of your money. Homewood Federal Savings Bank offers online resources that can help you budget. Our online calculators can help you estimate savings and lending options. Any one of our helpful hometown banking staff would be happy to visit with you and help you with your budget planning.