Budgeting 101

Back to blogPosted by First National BankPosted on Banking 101

It’s always a wise decision to think about creating a budget. The positive benefits of doing so are endless. Some people may be afraid to start because they feel it’s too complex but that’s not true at all. It’s always possible to start simple when creating a budget; just follow these steps:

Define why you want or need a budget – In some cases, you may notice that your money seems to slip away or you have incurred a substantial amount of debt. In other instances, it may be a case of wanting to be more responsible and know where your money goes as well as be more financially stable. Think of the main reason(s) you want or need a budget.

What are your financial goals? Think of your long term plans: Do you want to pay off the credit cards, student loans, or car? Do you want to save up for a down payment on a house, build up an emergency savings or take a nice vacation? Think of what you want to do, set a financial goal, and how you can achieve it. 

Notice what your spending habits are – Track what you spend in a month. What do you notice? Do you have subscriptions or memberships? Do you go out to eat or for drinks frequently? Do you have a slight shopping addiction? Keep a record of what and/or where at your spending money goes.

Calculate your weekly/monthly/yearly income – One of the first steps in creating a budget is knowing what your income is. Break down what you make in a week, month and a year.

Create a bare bones budget- what do you need every month? Add up your expenses that HAVE to be paid every month: mortgage/rent, utilities, car payment, credit cards/other debt, etc. Things that have a due date.

Other expenses – Tally up other expenses that you typically have to buy/pay for every month: groceries, toiletries and other personal items like makeup, house and cleaning supplies, etc. Make sure these expenses are more needs vs. wants.

Subtract expenses from your income – Take the total amount of your income then subtract the total amount of your expenses. Look at the amount you have left.

Create a budget plan. What can you cut out or do without? Take the amount you have left after expenses and decide how much will be put away each week or month. Also see what could be adjusted – cancel any memberships or subscriptions you don’t need or cut back on eating out, shopping, and other little luxuries. Decide what amount you need to put away to bring you closer to your goal.

Monitor and adjust – After a couple weeks or months, check back and see how you are progressing. Are things improving or do you see something else you could cut back on to increase the amount in your savings? A good example would be to cut back on some groceries. Are you buying too much on each trip? Not only is buying too much wasting food but it’s literally throwing your money away. 

These basic steps are a great way to build better habits as you work toward financial stability and future goals. Start small and build big.