People who have healthy spending habits are more likely to reach their financial goals than those with unhealthy habits. One way to encourage smart decisions about money is creating a budget that helps you stay within your means and make room for long-term planning.
Here at Addition Financial, we believe that budgeting is necessary for our members at every income level. If you’re just starting out in your career, you may need to minimize spending to avoid debt. Even if you’re earning a comfortable monthly income, budgeting will help you to pursue your most important financial goals. With that in mind, here are eight tips to help you create a budget you can stick to.
Before you create a personal budget, let’s review the types of expenses that should be included. It’s essential to account for all significant and predictable monthly expenses because that can help you prepare for variable expenses. We all have an unexpected expense or two at times. Proper budgeting can make that prospect a lot more manageable. Here’s what you should include:
Every debt payment and monthly saving goal should be included. People sometimes make the mistake of excluding savings goals from their monthly budget. Including payments to yourself is one of the best ways we know to prioritize savings. It’s also a crucial step if you don’t yet have an emergency fund.
Any budget you create must be specific to your financial circumstances and goals while being suited to your spending and saving style. Here are eight tips for creating a budget that will work for you.
Before you create a budget, we suggest setting a main financial goal to help you choose the right budgeting method for your needs. For example, your primary goal might be saving for a down payment on a house or paying off your student loans. You can have multiple goals, and if you do, make sure to decide which SMART money goals are the most important.
There’s more than one style of budgeting. You’ll get the best results if you choose one that aligns with your spending style and goals. Some examples include the following:
If you struggle with spending, the envelope system might be a good choice, whereas if your main goal is to pay off debt, you might prefer the pay-yourself-first option.
We already mentioned the zero budget, but even if you choose another type of budget, we suggest budgeting to zero. What we mean by that is that you’ll account for every penny you earn. If you spend less than anticipated, you’ll make extra debt payments, save the money or invest it. At the end of the month, everything should zero out and you’ll start fresh in the new month.
Everybody should create a budget with their most important expenses in mind. These should include needs such as rent, food and utilities; debt repayments such as credit card debt or student loan debt; and savings for a down payment on a house or a new car. Once you have these expenses covered, you’ll know how much you’ve got left for other spending categories.
When we talk about budget priorities, we’re talking about needs and not wants. You need to pay your rent and utilities every month. You don’t need to go out to dinner twice a week. Your needs should be the first things to go into your budget and then, you’ll be able to evaluate whether there’s room for the things you want.
One of the highlights of the pay-yourself-first budget is that it prioritizes financial health. Whatever method you choose, we suggest prioritizing saving money in whatever way makes sense for you. Some examples include creating an emergency fund, saving for a big purchase or putting money aside to invest for your retirement.
Whether you’re carrying credit card debt or student loan debt, repaying it should be high on your list of priorities. Carrying some debt is fine but not if it’s negatively impacting your credit score or putting your financial goals out of reach. You can choose the debt repayment method that works for you and make a plan to pay off that debt as soon as possible.
Any budget should include a miscellaneous category to make room for unanticipated expenses. At the end of the month, any money that’s left in that category can be saved, invested or put toward paying down your debt.
Here are a few money management tips to help you stick to your budget once you’ve created one that works for you:
Choose one or more strategies that can help you overcome budgeting or spending issues and see how much they help.
In addition to money management tips, here are some specific tools and resources that can help you manage your budget:
These tools are just a few of the many that are available to help you create a budget and stick to it. You may also want to consider finding some investment research tools if you’re putting money aside for retirement.
Healthy money habits start with effective budgeting. The 8 budgeting tips we’ve included here, together with budget management strategies and budgeting tools, will help you create a budget. Stick to it, and you’ll be able to turn your most important financial goals into realities!
Are you looking for financial tools and guidance to help you achieve your financial goals? Addition Financial is here to help! Click here to read about the benefits of credit union membership and join today.