A budget is a simple way to understand where your money is coming from and where it’s going. Building and maintaining one helps you gain financial awareness of how your money is being used, and it’s an essential tool to help you achieve your financial goals.
Whether you don’t currently use a budget and want to get started, or just need a refresher, here are 6 steps to create one:
Step 1: Gather your financial information
Collect all your financial documents and receipts for three consecutive months. This includes all account statements, bills, pay stubs, receipts and more. Put them somewhere secure that you can easily access, such as a folder on a password protected computer.
Step 2: Categorize your incoming and outgoing expenses
Split your documents into income and expenses. Don’t forget to factor in occasional and seasonal expenses, such as funds for a wedding gift or landscaping services.
Next, create a new spreadsheet or download our handy budget worksheet. You’ll need this for the next steps.
Step 3: List all your needs
Review the expenses you’ve documented from the past three months and identify which items you can’t live without. These are referred to as needs and includes fixed expenses like mortgage or rent payments, savings, insurance premiums, and car payments, as well as fluctuating but necessary expenses, like groceries and gas. The team at MSGCU suggests starting with your fixed expenses, followed by your non-fixed expenses, as this tends to be easier.
As you look at each need, make sure to write down its corresponding cost.
Step 4: List your wants
Your next step is listing what you love but can live without. Include streaming services and other entertainment costs, as well as eating out, and hobbies like golf or travel.
Add these items and their costs to your spreadsheet.
Step 5: Tally up the total
Now that you’ve listed your wants and needs, add up their total and see how it measures up to your monthly income. If expenses outweigh income, you’ll need to trim some costs (or add extra income) for your budget to work. Needs should be prioritized, so if you do have to cut some costs, start with your wants.
Step 6: Review and adjust as necessary
Review your budget regularly to see if you’re staying on track. To keep your budget balanced, make sure that you update and adjust your budget any time there’s a change to incoming funds, like a raise or side-hustle, or a new outgoing expense, such as a new monthly service.
Don’t forget to congratulate yourself on doing this important work. It can be overwhelming to see all your expenses in one place, but creating and maintaining a budget is a really big step toward better control over your finances.
Have questions or want some extra help making a budget that works for you? Make an appointment with one of our certified financial counselors, located at every branch. Get started by calling, video banking, or stopping by any one of our 24 branches.
Category: Finance
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