Do you have financial goals? Would you like to purchase a new home, pay off student loans, or build a nest egg for retirement? The only way that you can achieve financial goals such as these, is by managing your money. Creating a budget can help you to manage your savings and spending. A budget creates a guideline enabling you to live within your means, while still working toward achieving your financial goals. Even though it sounds simple, developing a budget and living within that budget can be a challenge, especially when unexpected expenses arise. But being prepared is crucial. Creating a budget will enable you to manage expenses, pay off debt, and create healthy spending and saving habits. Now, let’s walk through the basics of building a monthly budget.
Use the budgeting basics worksheet as a tool to calculate your monthly income and expenses, as referenced below. Completing the budgeting worksheet monthly will enable you to see any fluctuation in expenses or income over time. To access the worksheet, click on one of the following links:
Assess Your Income
The first step in creating your monthly budget is assessing your monthly income. First look at your most recent paystub, look for the amount of net or take-home pay that you receive. Next, think about any additional sources of income that you earn, i.e. pension, interest. If you are calculating your household income, be sure to include your spouse’s income as well. Once you have established a total monthly income amount, you can move on to the next step.
Estimate Your Expenses
To get a clear picture of your overall expenses, you may need to look at 6-12 months’ worth of bank statements, invoices, utility bills and credit card/loan payments. Also, take into consideration any annual expenses such as homeowners insurance or car insurance. You can factor in these expenses by dividing the annual cost by 12; this will give you your monthly expense. Note: If your homeowners insurance is included in your escrow account, then you do not need to calculate the monthly expense, it’s already included in your mortgage payment. When estimating your expenses, consider everything that you are required to pay throughout the year, this will help you to best prepare for the future.
Calculate the Difference
This is one of the most important steps in creating a budget. By calculating the difference between your monthly income and expenses, you will be able to see if you are truly living within your means. Subtract your monthly expenses from your monthly income. If the number is negative, you are spending more than you are earning. You may need to review your expenses to see if you could possibly reduce any of your monthly payments. UECU offers an array of affordable loan solutions, including debt consolidation loans, home equity loans, mortgages, and credit cards. You may be able to reduce your monthly payments by consolidating your debt and lowering the interest rates that you are currently paying on loans and credit cards.
If the number that you calculated was positive, you are earning enough to pay for your expenses and save money. You can also designate an amount that you will be able to transfer to your savings account each month. This will enable you to save up for future unexpected expenses and reach your financial goals. This money can be used toward a down payment for a new home or to pay down debts like student loans and high-interest credit cards.
Plan for the Future
Now that you have created a budget and painted a very detailed financial landscape, you can set your future financial goals. Whether your goal is paying off debt or building a retirement savings, you cannot achieve it without a budget. Also, remember that your budget may need to be adjusted from time to time depending upon your particular financial situation; many things can affect a budget including changes in income and expenses. It is very easy to get off track and veer away from the budget, especially when you really want to make a compulsive purchase. Keep in mind that sticking to a budget isn’t easy, but the rewards are amazing. To keep yourself motivated, create reminders like photos of the home that you are saving for or pictures of your dream vacation destination. Your financial goals are within your reach!