By Martin A. Smith, CRPC®, AIFA®, President, Retirement Planning Financial Advisor™, Wealthcare Financial Group,...
Having a budget is an invaluable tool regardless of your income level, but setting a budget can be a daunting task. The good news is that by having one, you’ll be able to track expenses and spending. You have money coming in; a budget helps you assign where it goes.
Here are several tips for setting or restructuring an existing budget:
Setting goals gives you focus and motivation. They provide a roadmap in the budget process by showing you where you want to be, and what it takes to get there. A helpful tool is to set financial goals in different categories.
- Priority goals: covers necessary items, such as food, utilities, vehicle expenses, etc.
- Secondary goals: eating out, entertainment, and vacations would fall under this category
- Long term goals: big ticket items like retirement, perhaps saving for a down payment on a new home
Income and Expenses
When setting a budget, you’ll want to document all sources of income. Next, you’ll want to list expenses in the following groups:
- Fixed, committed expenses: expenses that have a set monthly amount such as rent/mortgage and vehicle payments.
- Variable, committed expenses: vary month-to-month, based upon need, like groceries.
- Discretionary expenses: optional expenses like gym memberships and entertainment.
Add up all income sources as well as fixed and variable expenses. This is the foundation of your budget. Discretionary expenses come last; only add those if there’s enough income to go around.
Staying on track with your financial goals means keeping good record of your finances. Whether using an app or a filing cabinet, being organized is important in budgeting. Frequently reviewing your checking account along with bank statements is a key component of budget management.
Create an Emergency Fund
Budgeting—whether on a limited or vast income—is challenging enough, so it’s no wonder that creating an emergency fund appears overwhelming. More devastating than that, is having an unexpected expense without a backup plan. Setting aside as much as $50 a week can lead to $2,600 in one year; even a small emergency fund is better than nothing. Start small, and as you pay off debt, increase your weekly contribution to the fund.
Adjust Your Budget Accordingly
A loss of a job, or reduced hours can also affect income, so financial experts recommend having at least six months of living expenses saved. Creating separate savings account toward this goal is different from the emergency fund. No matter what job or life changes occur, adjust your budget accordingly and do your best to keep moving forward.
Revisit and Regroup
Take time to revisit your original goals and budget over the course of several weeks or months. Realize that life happens and budgets will need to be adjusted accordingly; time and life experiences may change your goals, a new job may affect your income, and so on.
Creating a budget and sticking to it is a step in the right direction toward financial freedom. No matter what your income is, setting a financial plan requires taking a hard look at your finances. Budgeting is beneficial to developing new habits, reducing stress, and adding focus to priorities.
Budgeting is a useful tool in simplifying your life. Sell unwanted items for extra cash and grow vegetables to save on food costs. Invite friends over for a night of board games, and check out free community programs. By taking a closer look at where your money goes, you’ll find a richer life in more simple things. You’ll identify what’s important and what’s not when it comes to expenses and necessities. If there is a high-priced item you’ve had your eye on, treat yourself once you’ve paid down your debt. You’ll enjoy it much more knowing it’s paid for. Having a budget can help you get on your financial feet, no matter your level of income.
Information appearing in this article is obtained from sources we believe are reliable. The information may not be a complete statement of all available data and is not guaranteed as such. Marine FCU is not responsible for the contents of this article and advises its membership to investigate claims before following the information provided.