If you’re like most people, you work hard for your money. You need much of that income to pay your bills – housing, food, cars, insurance, etc. But you’d also like to have a little extra for the finer things in life – a new deck perhaps, or a nice.
The key to having enough for both your needs and wants is to spend your money wisely. A good way to achieve that goal is with a household budget. This tool will help you document how much you take in, how much you pay out, and provide clues as to how you might stretch your dollars a little further.
Tracking your monthly budget is easier than ever using software or apps like those offered by Mint Quicken, and the appropriately named You Need A Budget. Whether you use special software or simply Excel to help you run the numbers, this guide will help you understand how to start a simple budget.
Add up your income: You probably have a good idea of your annual salary, but to calculate your household budget, you’ll need to know how much you earn monthly. It’s a good idea to use paycheck stubs – either paper or online – for all the wage-earners in your family. Be sure to also include regular income from other sources, such as interest or dividends. You'll also want to make sure you subtract the amount deducted for taxes, Social Security, Medicare and your retirement plan. Your take-home pay is known as your net income.
Compute your expenses: How much do you spend each monthly? Expenses can be divided into two categories – fixed and variable. Fixed expenses are the things you pay the same amount for every month – housing, car loan payments, and your cable bill are common examples. Variable expenses change month to month, and can include grocery purchases, electric bills, and clothing and entertainment costs. It’s easier than ever to find expense information – your Savings Institute Online Banking and eStatements contain a history of payments from your checking account. Individual expenditures are also listed on credit card statements, which you can view on paper or online.
What’s the difference between your income and expenses? The next step is to use basic math to figure the difference between your income and your expenses. If your net income exceeds your expenses, that’s great. Then you can work to make the gap bigger. And if your expenses exceed your income? Well, you know you need to look for ways to save.
Set some goals. You’re most likely to follow a budget if you have specific financial goals in mind. They can be short-term goals, such as eliminating some debt or buying new appliances. Or they can be long-term goals, such as building up savings to buy a house, funding a child’s college education or building a retirement nest egg. An excellent way to motivate yourself is to write down your goals where you’ll see them each time you work on your budget.
Crunch the numbers. Now it’s time to get organized. Divide your expenses into categories. These might include housing, transportation, loan payments, utilities, food, health care and entertainment. Within those categories, identify each month’s fixed costs and variable expenses. You probably won’t be able to alter your fixed costs very much – after all, you have to pay your mortgage. But looking hard at the variable costs might pay big dividends. Could you save money by dining out less often? By reducing your electric use? By carpooling or taking public transportation? One way to think about it is decide what you need and what you merely want. Can you live without some wants to have more money to pursue those short- and long-term goals?
Some loose guidelines. A good rule of thumb is that 50% of your budget should go toward fixed expenses, 30% toward variable or flexible spending items, and 20% toward your goals. Make sure you build a smart savings plan into whatever formula you use, especially if you’re setting money aside for long-term goals. Savings Institute offers interest-bearing savings accounts and Money Market accounts, as well as certificates of deposits that will help you make the most of your money.
Keep plugging away. Once you identify ways to save, first set monthly goals for each category. You’ll need to keep constant tabs on your spending for all your efforts to pay off. Get in the habit of documenting every expenditure, whether you save a receipt, send yourself a text or make a note in a budgeting app. That very act may make you think twice about buying things you don’t really need. And check in with your budgeting software at regular intervals to track your progress. As time goes on, you’ll sharpen your skills and come up with new and better ways to make the most of your money.
Need more help? Come in to any of our branch locations with questions. We’re here and happy to help!