Grow Financial Federal Credit Union

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August 13, 2020

Thinking About Creating a Monthly Budget? Start Here.

If you find yourself interested in budgeting but unsure where to start, you’ve come to the right place. We’ll talk about the benefits of budgeting, popular budgeting methods and mindset tips to make your budget effective for you.

Why should I budget?

While roughly half of American households currently live paycheck to paycheck, only about one third of all households utilize a monthly budget. What’s more, the average person spends only about five hours per year on dedicated financial planning.1 It’s clear that most of us can be doing more when it comes to managing our finances. By adding intentional budgeting, you can jumpstart your savings, pay off debt more quickly and make progress toward your financial goals.

1. Determine income and expenses.

The primary step you can take right now is to examine your spending habits with a fine-toothed comb. What are your essential expenses that recur and are expected each month? Think rent, utilities, groceries, insurance and payments on loans or other debt. Now, assess your discretionary spending. Are there any areas where you could reduce or eliminate an expense? Some things that often fly under the radar are subscription services, memberships we don’t use as often as we think, dining out and other forms of entertainment.

Once you’ve calculated money in vs. money out, you’ll have an idea of how you’re currently operating. Then, you can decide if any adjustments to your spending patterns are needed to meet your individual financial goals.

2. Identify a budgeting plan.

Armed with the information about your financial habits, you can create a budgeting plan that works for you. It’s sometimes helpful for first-time budgeters to stick to a plan that has set guidelines, at least for the first few months while you get the hang of adhering to a budget. A few popular options include:

  • 50/30/20 budget, where you spend 50% on essentials, 30% on discretionary wants and 20% on savings. This method is great for getting you in the savings mindset without being stifling, since you still get to spend a third on the fun things in life.
  • All-cash or “envelope” method, where you designate specific cash totals for each spending category and only spend up to that exact amount. This method may help some resist the temptation to overspend, since all amounts are designated in cash, but it can feel a bit more constraining for the free spirits out there who still want some flexibility.
  • The traditional zero balance budget, where you map out each dollar at the beginning of the month. Similar to the all-cash method, this provides maximum guidance and is thus less flexible, but it’s a great way to track every penny and one of the best ways to tackle paying down debt.

There are many other budgeting strategies out there today. We’re happy with whichever method you pick, as long as it allows you to plan in a way that fits your life and your financial goals.

3. Automate your savings.

Among the best things you can do for your current and future self is automating your savings. The goal is to make saving second nature. The easiest way is to take a set percentage out of each paycheck, so you don’t miss it. Well, maybe you’ll miss it a bit at first, but if you’ve planned saving into your budget, it’ll get easier over time. You want to begin saving as soon as possible so the money can have time to potentially grow. This is especially important when planning for retirement. Time is really your best ally to grow a long-term nest egg.

If you’re having trouble committing to a budget, don’t be discouraged. The transition from freeform spending does take some time getting used to, but we encourage you that it’ll be worthwhile. By sticking to your budget, you’ll be able to reach financial goals faster and feel more confident in your purchasing decisions.

Need a little help tracking spending? Try the Budgets widget in online and mobile banking!2 You can create personalized budgets for each of your accounts and watch where your money is going, whether you’re spending it on food or gas or birthday shopping. Check it out!

1Statistics provided by debt.com, based on a 2017 MarketWatch report, 2013 Gallup Poll, and data from Calendar.com.
2Additional data charges may apply when using apps. Please see your wireless carrier for more information.


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