As we get ready to ring in 2021, now is a great time to set financial goals for the year ahead. If one of your New Year's resolutions is to organize your finances, creating a budget is the first place to start!
Budgeting gives you a clear plan to help you meet your day-to-day expenses. It also helps you save money, so you can prepare for emergencies as well as your long-term goals and dreams.
Follow these simple steps to help make your budgeting a success in the new year:
#1: List your income and expenses
Start by listing all your fixed and variable expenses. Fixed expenses are the expenses that stay the same from month-to-month, such as:
Variable expenses are the expenses that change from month-to-month, such as:
If you're not sure how much you spend in each category, reviewing previous account and credit card statements will give you a good idea.
Now, add up all your monthly expenses and compare the number to your monthly income. If your income is higher than your expenses, you're on the right track! Creating a budget will help you keep up the good work so you can save even more for your goals. If your expenses are higher than your income, following a budget will help you avoid overspending and stay within your means.
#2: Make a plan
There are many different ways to build a budget. With traditional line-item budgeting, you list out all of your expenses and plan your spending based on categories like “housing," “transportation" and “food."
If you're new to budgeting, it may help to follow a pre-made budgeting framework, like the 50-20-30 method. No matter which style of budgeting you choose, your goal should be to keep your expenses equal to or lower than your income.
#3: Track your spending
A budget isn't something you can set and forget. After you make your plan, continue to track and record your spending. You could use a notebook, spreadsheet or online budgeting tool like WPCU's Money Management to monitor your spending and ensure you're staying on track.
#4: Keep checking in
It's important to revisit your budget each week and to update it monthly to plan for those occasional expenses, so you're not caught by surprise. As you review your budget, you might identify areas where you can cut back to save more. If you have money left over at the end of the month, great job! That means you can put even more toward your savings.
#5: Reward yourself along the way
Sticking to a budget takes time. Keep up your budgeting momentum by rewarding yourself as you reach your goals. It could be a small indulgence like a gourmet coffee or a new pair of shoes. Or, save up for a bigger splurge like a weekend getaway or the latest tech gadget. As long as you're planning for every purchase and spending within your means, you can reward yourself guilt-free!
There's no time like the present to create a budget and work towards your financial goals, and Wright-Patt Credit Union is here to help you every step of the way! Check out our free downloadable budgeting worksheets and spreadsheets to help you get started with smart money management.