A budget is an essential tool for properly managing your money. It helps you spend within your means, maintain and build credit by paying bills on time, and save for emergencies or goals.
Creating a budget takes some effort. Use these five steps to help you get started.
To create a budget, start by asking yourself two critical questions:
Continue by taking a snapshot of all of your assets, including any savings, retirement accounts, and investments so you know what your financial situation looks like. This will be helpful when moving on to the next step.
Now that you know what your financial snapshot looks like, you can identify any areas that need extra attention. Perhaps your emergency savings fund is lower than you would like, or you’re not putting enough money toward retirement. These can be included in your list of financial goals.
List out each of your financial goals and label them as short term (within five years) or long term (more than five years out), then prioritize them in order of importance. Here’s an example:
In step one, you calculated your monthly income after taxes as well as your monthly expenses. Now it’s time to start number-crunching.
List those numbers in a table or worksheet format. (There are plenty of formats online to choose from.) Here’s an example:
You can update these numbers as your situation changes, whether you receive a raise at work or you add a new goal.
Responsible credit practices are essential to keeping a good budget. Erratic spending can result in overspending, which can jeopardize your monthly budget and have a negative impact on your credit score if you can’t make timely payments.
Group credit card charges into your budget categories so you properly track all of your transactions and don’t steer off course.
A budget is only effective if it’s followed, so monitor each category to see if your spending mirrors your predetermined budget. For example, if you allot $100 for clothing each month but you end up spending $150, you’ll have to find a category or two where you can make up for the lost $50.
Once you feel comfortable with the budget moving forward, stick to it. Hold yourself accountable so your expenses don’t exceed your income, otherwise you could fall short of some of your financial goals.
It’s important to remember a budget is not set in stone; it can be updated based on any changes in your life. For example, your budget will obviously be impacted if you start a family or experience a job loss. Furthermore, you may notice you’re spending far more on food each month than you originally allotted, or find you have more room for savings than you anticipated. Find what works for you and commit to the budget.
We are committed to helping you reach your potential by providing personalized solutions. Our dedicated colleagues can help you find the right product to help you reach your goals. To learn more, please call 1-800-360-2472, visit us online, or visit your nearest Citizens Bank Branch.
Disclaimer: Views expressed may not necessarily reflect those of Citizens Bank. The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for legal counsel, nor does it constitute advertising or a solicitation. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.