The Best Way to Budget? Just Do It!
Why Budgeting is Important
Budgeting is a key part of financial planning that helps individuals and businesses keep track of their income and expenses. It allows people to create realistic plans for money management so they can save for the future, pay off debt, and make smart spending decisions. Budgeting also helps to identify areas where money can be saved or invested to reach long-term financial goals. By creating a budget, individuals and businesses are better able to manage their finances and avoid costly mistakes. Here are five other ways budgets can help you with personal finances and better financial planning. They can:
· Help you work toward long-term financial goals, such as saving for a house or car
· Keep you from overspending or spending beyond your means
· Make saving for your retirement easier and more achievable
· Ensure you have money set aside for emergencies such as job loss, illness, death of a spouse, and others
· Uncover spending habits so you can refocus your goals
While there are many reasons to have a budget, from debt repayment to saving money for the future, any budget will help bring you closer to financial security by helping to bring your income and expenses into clear focus.
How to Create a Budget
From TikTok influencers to financial planners, there are a lot of budgeting tips on how to create and how to stick to a budget. But it doesn’t have to be difficult or even time-consuming. All you need to do is start! Here are five quick steps you can take today to get you on your way to a more secure financial future:
Step One: Know Where You Are
Write down all your expenses and compare them against the money you make. Subtracting expenses from income will let you know if you are spending more than you make. You can use this monthly budget planner to help and can also use budget calculators, budget templates, and other tools to help make sense of your current financial situation.
Step Two: Set Financial Goals
After you understand your current expenses and income, think up some short-term and long-term financial goals and write them down. Short-term goals are those that may take up to three years to achieve, such as paying down credit card debt or setting aside money for an emergency fund. Long-term goals are those that take more than three years, such as saving for retirement.
Step Three: Take Action
Now create a budget that breaks down your take home pay into three categories to distribute your spending, including those short-term and long-term goal categories. Use the 50/30/20 rule to get started. 50% of your budget should be spent on things you need, such as rent, car payments, utilities, and groceries. 30% can be spent on things you want such as shopping or vacations. Finally, allocate 20% of your income to pay off debt or save for retirement, emergencies, or education.
Step Four: Adjust
Once your expenses and income are documented, you may need to make adjustments as things change so that you always have enough money for your needs. For example, if you want to budget for a new car, you may need to reduce the amount you spend on dining out so you can put more toward the “new car fund.”
Step Five: Review
Needs and wants can change over time, and so can your income and your expenses. That's why it’s important to review your budget on a regular basis so you can be sure you are staying on track to reach your goals.
Accomplish Your Goals with Encompass Credit Union
Budgeting might seem daunting right now, but your future self will be very glad that you started. As the saying goes, "The best time to plant a tree was 20 years ago. The second-best time is now.” So set your goals and start managing your money in a way that will keep you prepared for the future. We’ll be here to help you along the way.
Get more from your banking experience. Contact us now and learn more about how we can help you get ahead financially.