According to a 2020 survey
conducted by Debt.com, more Americans are budgeting than ever before. The study suggests that 80% of American adults now prepare and try to stick to budgets compared to just 67% in 2019. If you have been hesitant to create a budgeting plan in past years in fear that you will stray from it, here are some tips to start out and create a general plan for yourself or your family.
Track Your Purchases for One Month
Creating a budget without knowing exactly how much you spend each month or where you spend it can be difficult. Before you sit down to create a budget, track your expenses for a full month. If you are married, have your spouse do the same so that you have the whole picture. Completing transactions with a credit or debit card will make it easier to track spending than if you pay with cash. If you do use cash, consider jotting down how much money you spent and where you spent it in a specific notebook or app on your phone.
Use Past Purchases as a Blueprint
Once you have tracked purchases for 30 days and have all of the data together, use the figures to start creating a monthly and/or annual budget. Keep in mind that your expenses will most likely not be exactly the same month to month. They could be larger or smaller in some cases due to special circumstances. For example, you could have a higher heating bill in the winter months and a higher electricity bill in the summer when you’re running the AC. Likewise, you may have more expenses around the holidays, or during the back-to-school shopping season than you would during some other months.
It may be worthwhile to consider reviewing bank statements from the previous year to get a better idea of fluctuations in month-to-month spending. Most banks retain customer statements for seven years. In most cases you can access them online
, or you could contact your bank and request copies of them if needed.
Common Budgeting Categories
While everyone has different financial priorities, the following are typical budget categories
A rent or mortgage payment is typically an individual or family’s largest expense each month. Financial experts recommend that it not exceed one-third of your household’s total net income.
Your food budget should include money spent on groceries as well as dining out. You may be able to save more than you realize
by preparing more meals at home.
This category includes car payments, auto insurance, gasoline, repairs, and general car maintenance. If you do not own a car, you will need to budget expenses for public transportation or ridesharing.
This category typically includes bills for things like water, sewer, trash pick-up, heating and cooling, internet, cell phones, and cable.
If you receive health insurance through an employer and it is taken out of your paycheck automatically, you do not need to include it in your budget. However, if you purchase health insurance on your own, you should make sure that those monthly payments are reflected in your budget. This category also includes co-pays, deductibles, medical equipment, prescriptions, and any other known or reoccurring healthcare expenses you pay out of pocket.
• Debt payments.
If you or your family is in debt, you may want to make it a priority to pay off as many accounts as possible. You can start by putting all extra funds towards the account with the smallest balance. Once that is paid off, you can move on to tackling the next smallest account balance, and continue the process until you have paid all of your debt in full.
• Discretionary spending.
You still need to plan for some fun, even if you’re trying to adhere to a strict budget. Don’t forget to put some money aside for the occasional night out or unplanned family activity.
Establish Goals and Create a Plan
Budgeting can be easier to stick to when you have specific goals
in mind that you are saving for. Try not to make your goals too vague such as “I want to save money”. Consider why you want to save money. Do you want to retire earlier? Help your children pay for college
? Pay off your mortgage
? Get out of debt? Having a specific reason for saving money can help keep you motivated when it comes to following a budget. Writing down a dollar amount and deadline with each financial goal
can provide even greater motivation
. If you are married or in a relationship, involving your partner in creating a budget and setting financial goals that matter to both of you can also motivate results.
Create an Emergency Fund
Many financial experts suggest
aiming to set aside three months’ worth of living expenses that you can access in case of an emergency. Unfortunately, many Americans find themselves only one missed paycheck away from financial disaster instead. Consider including saving towards an emergency fund in your budget if you feel you would be in debt from an unexpected emergency.
BankFive understands that our customers have unique and personal financial goals, and we want to help you succeed in achieving them. Visit the Budgeting
section of our blog for more budgeting tips, tricks, and advice.