Budgeting 101

Whether you’re saving for the future or just need to know where all your money is going, budgeting effectively can help. As an essential aspect of personal finance, budgeting is important for everyone because it can help you reach your financial goals, regardless of how much money you have now.

Creating and maintaining a budget has many benefits including better financial security, a higher credit score, and less debt. But how do you create an effective budget to reach your financial goals? Keep reading and find out our top budgeting tips!

Budgeting 101

Create a Monthly Budget

In order to know exactly how much money you’re receiving and spending each month, the first thing you need to do is create a monthly budget. Begin by adding up all the money you receive each month from things like jobs, side work, child support, and any other source. For jobs, be sure to use your after-tax pay, as this is what you can actually spend.

The next step is to list out and add up all your monthly expenses. This part can seem challenging if you have never created a budget before. To start, gather all your monthly bills, bank statements, and credit card statements, and list everything you spend money on, along with the monthly amount spent on each item. The personal finance experts at Credit.org recommend tracking these expenses:

  • Housing – mortgage, rent, insurance
  • Utilities – electricity, gas, water, sewage
  • Car – car payment, insurance, gas
  • Loans – credit card bills, student loans
  • Amenities – phone, internet, subscriptions
  • Medical – medical bills, health insurance
  • Necessities – household products, clothing
  • Groceries – food, pet food
  • Entertainment – dining out, activities, gifts
  • Miscellaneous – unknown expenses

Now that you’ve added in your monthly expenses, you need to account for any quarterly, bi-annual, and annual expenses you have. Since you don’t pay these expenses monthly, you have to save for them throughout the year to ensure you have enough money to pay them. For example, if you pay your home insurance once per year, divide the total amount by 12 and add it to your monthly budget, and be sure to save the correct amount each month!

Now that you’ve listed and calculated your total income and expenses, you need a way to track them. Using a spreadsheet, notebook, or whatever you’re most comfortable with, make a chart that lists all income on one side and all expenses on the other side. Add up the total amount for each and then subtract your monthly expenses from your monthly income. If you have extra money each month after paying your expenses, that would be great to put in savings. If you don’t have enough money to cover your monthly expenses, you will need to lower your expenses or increase your income.

Needs vs Wants

As you list out all the things you spend money on, thinking about each item and determining if it’s a need or a want is essential to maintaining an effective budget. You can easily tell the difference between the two categories because needs are things you actually need to live, such as housing, clothing, and food. Wants are things that you don’t actually need, but are nice to have, such as entertainment, dining out, and vacations.

One important reason to categorize your expenses into needs and wants, is that if you have to lower your expenses, you will have to reduce your wants.

Track Your Actual Spending

After creating your monthly budget, you will need to track your actual spending moving forward. This allows you to identify whether or not you’re spending within your budget, and lets you know if any changes need to be made.

The quickest and easiest way to do this is with free software like Mint, which is a budget planner and spending tracker. If you prefer, you can also manually review your bank and credit card statements on a monthly basis to calculate your actual spending.

Now that you have your monthly budget and are tracking your actual spending, you will need to compare the two on a monthly basis to determine if you need to make adjustments to either. As an example, if you find you are spending more on eating out than you budgeted for, you may need to decrease the number of times per month that you go to restaurants.

Save for Your Future

Starting a savings account that you add to regularly is important for your future needs and wants. Investing in your education, going on your dream vacation, and buying your first home are all great goals for your savings.

To make saving easier for you, look at it like it’s a bill that you’re paying to your future self. Decide on the exact amount that you want to save each month and add it to your monthly budget.

Put Your Career On the Fast Track

With your budget created, you’re now ready to invest in your future! At Boardman Training Center, we offer fast track career training programs to get you in your dream healthcare career quickly. Learn more about our Phlebotomy Technician, EKG Technician, Cardio Phlebotomy, and Medical Office Specialist programs and get started today!