Build a budget to jumpstart savings
It can be difficult to get a handle on where money is flowing, but a budget can simplify that process.
Over the past 18 months, Americans have faced uncertainty surrounding work and health, forcing many to put planning and savings to the side. No matter your income, building a budget will help you get a clear picture of where your money is going. Are you spending too much on certain discretionary items? Is there the potential to put more money into savings and retirement? It can be difficult to get a handle on where money is flowing, but a budget can simplify that process.
How to get started
There are various online resources for building a first-time budget. You could use an online template from Quicken, NerdWallet or Microsoft or you can create your own using one of the many spreadsheet tools on Windows, Google or Mac or even pen and paper if that is your preference.
Your budget should include line items for fixed expenses like rent, mortgage, taxes, HOAs, car note, insurance, and utilities which normally are static month-over-month. Additionally, you should include variable expenses like food, charity, entertainment, doctors, and health clubs. Tracking fixed expenses is certainly an easier task, whereas variable costs are constantly changing. A smart strategy for variable costs is to monitor spending for three months and average the monthly spend to get a baseline. Include as many categories as you need to cover all your expenses. Be sure to include line items for savings, retirement contributions and investing.
Lastly, include your monthly net income and subtract your expenses and savings from that figure to determine your remainder each month. That remainder can be used to further build savings or be allocated to unexpected expenses that may arise over time.
Here is what a sample budget for someone earning $5,000 net monthly income may look like for reference.
Adjusting your budget
Creating a budget is only the first step in improving your savings and managing your spending. It is now up to you to adjust the way you are managing your money. Do you see certain expenses that you feel you are overspending on? We all can be guilty of overindulging on dining out too often, or even buying that extra pair of shoes; if you really want to get your spending under control, you have the power to stick to your allocated budget each month. Once you can identify expenses which you can pull back spending, you must decide where those savings get allocated – perhaps you want to max out your IRA this year, or even increase your emergency fund? Those decisions are yours to make.
Using your budget
Over time, income and expenses will fluctuate. It is important to keep your personal budget up to date with changes in your life. If you earn a raise, or change careers, keep in mind the impact it will have on your budget and adjust as needed.
Allow your budget to help you reach your goals. Remember, one of your goals should be to keep your expenses equal to or lower than your income each month.
Budgeting tips
If you earn income as a gig worker, or have fluctuating income each month, it is important to focus on paying down debt and increasing savings when you have a month with above average earnings. No two budgets are the same, every person has different money goals, and it is important to focus on what works for you. If you find it difficult to keep up with a budget, struggle with getting started or staying on track, consider speaking with a financial advisor or an accountant who can help you with financial planning.
