How to Build A Budget Now

AWith everything going on in the world right now, you may be finding that your wallet is a little tighter than normal. It’s always a good idea to track your spending and be smart with your habits, but now is the perfect time to really buckle down and stick to a budget. Creating a personalized budget is essential to developing the right spending habits, setting aside money for the long term, and ensuring the money in your bank account goes where it needs to. This serves as your guide with our best tips to help you get started with building and keeping a budget.

Gather your information

Before you can build an entire budget, you need to gather some information. Start by thinking about why you want to have a budget in the first place. Are you hoping to save up for a big purchase, like a house or a wedding? Are you trying to get out of debt and build a savings account? Do you just want to stop living paycheck to paycheck? Knowing what your goals are will help motivate you to stick to them in the long run and keep going.

Once you’ve decided what your overall goals for your budget are, then you can start getting the necessary information to build that budget.

• Income – Determine what your post-tax income is. If you get a paycheck every two weeks, then that number should be pretty easy to figure out. Make sure to account for any pre-tax deductions that you take from your paycheck, such as 401k contributions. If your income is variable, determine a base salary that you make every month and base your budget around that. Any extra income you make that month can go into savings to help balance out a bad month.
• Expenses – Lay out what your consistent expenses are. It’s easiest to just list these out on an Excel sheet. Include fixed expenses, such as rent and car payments, and variable expenses, such as groceries and electricity. This is where you’ll really want to do a deep dive in order to get an accurate picture of your expenditures. Look at bank statements and download a budgeting app such as Mint or PocketGuard to help. This is time-consuming but really helpful to see exactly where your money is going and where you can cut back (those daily Starbucks don’t seem like much, but $100 a month is a serious chunk of change!).
• Factor in inconsistent expenses – Just because you have some payments that you don’t pay monthly, doesn’t mean you shouldn’t account for them in your budget. Look at your calendar and figure out when you pay consistent expenses. Car registrations, annual medical exams or insurance premiums fall under this category. Failure to account for these will make a hole in your budget that you didn’t see coming!

Choose a budgeting plan

Now that you’ve done all the background research, it’s time to actually compile it all into a budgeting plan. There are several different methods, but here are the most popular ones. It’s a lot of trial and error, so test one out. If it doesn’t work for you, try a different one. Pick the budgeting plan that works best for you and your lifestyle.

• 50-30-20 – This is by far the most popular budgeting method. It breaks your budget down into three basic categories: needs, wants, and savings. The basic structure is that your budget should allow 50% of your net income to go to needs. These are expenses such as rent, food, gas and minimum payments on debt. 30% can then be allocated to wants, which are expenses that can be cut down if necessary. These are expense such as shopping and entertainment. The final 20% goes towards savings. This includes a retirement plan, a normal savings account, investments or paying down a larger amount of debt.
• Cash envelope – With this plan, you pay all your normal expenses first, then pull out a certain amount of money into cash. A good starting point is using the 50-30-20 method. Divide them out into different categories. These categories can include shopping, eating out, coffee, entertainment and more. Every time money goes toward one of the categories, cash comes out of the envelope. This helps visualize how much money you’re spending since you’re physically seeing the cash exchange hands for each purchase.
• Zero-based – This is a method made popular by Dave Ramsey and is based on the concept that every month, your income minus your expenses are equal to zero. This doesn’t mean that you’re spending every bit of money that you get, but rather that every dollar is going to a specified place. A zero-based budget ensures that you’re accounting for every dollar and allocating it where it’s needed. Whether that’s towards debt, expenses or savings, it’s now categorized.

Revisit often

Once you’ve decided on your plan and worked to build your budget, it isn’t just set-and-forget. You should be reevaluating your budget regularly to make sure that it still works for you and you’re still moving in the right direction towards your goals. No budget is perfect, so don’t be afraid to make changes and adjust it as necessary. Checking in with yourself can help you to continue improving your budget and finances so you can get to the place that you want to be.

If you need more help budgeting and saving for a big purchase, such as a down payment on a house, contact Galaxy Lending Group. Our Loan Officers can help you look at your finances and set appropriate goals to make your home buying dreams a reality!