With inflation concerns rising and many Americans struggling to keep up, it’s more important than ever to brush up on the basics of budgeting. However, that’s not always as easy as it sounds. Here’s everything you need to know to get started.
Building a Personal Budget: The Why and How
What is a personal budget, why do you need one and where do you begin? Here’s everything you need to know.
Understanding a personal budget
In its simplest form, a budget is a written plan that helps outline how you spend money. It shows what funds you have available, what you’re purchasing and how much you can comfortably save. On top of that, budgets are also a great tool for financial visibility: Can you cut back in one area to give yourself more breathing room in another?
When starting your own budget, remember there’s no single “right” way to format this information. You can download templates from the Internet, use spreadsheets, pull up your favorite word processor or just jot things down on a scrap of paper. As long as you have enough space to track and visualize everything, you can do whatever makes the most sense for how you think about money.
Tips for building a budget
To get the most out of your personal budget, start with these tips:
#1: Categorize your expenses
Some expenses are required, such as car insurance, grocery bills and medications. Other spending is discretionary, including dining out, paying for multiple streaming subscriptions or buying new pet toys.
Once you’ve split up these expenses, take a closer look at your list of “musts.” Some are likely a set amount or otherwise beyond your control — but in some cases, you can get these costs down by taking certain actions or building better habits. For example, you might be able to save money on groceries by choosing generic brands or reduce your insurance bill with safe driving discounts.
#2: Think about savings
You may not be able to put hundreds of dollars into savings every month, but even tiny contributions can make a big difference over time. That’s especially true if you choose a savings account with a great interest rate.
As you think about your budget overall, take some time to consider what you could comfortably save. This money is a great “safety net” in case a large, unexpected expense comes around the corner — like an issue with your car’s engine.
#3: Keep good records
Keep track of everything you make and spend. That means saving pay stubs, receipts, invoices and other documents that can help you fill out your budget. This doesn’t just give you an accurate look at your financial situation; it also sets you up to notice problems. For example, if you’re keeping a close eye on your credit card and automatic charges, you won’t forget to cancel subscription services you no longer use. You’ll also have more time to respond in case of identity theft or financial fraud.
To get even more out of your budget, make a new copy every time you update the information. This helps you compare your spending habits over time, giving you the chance to learn and improve by reflecting on past months.
Building a Personal Budget: The Why and How
It’s not always easy to make and manage a personal budget. If you have questions about stretching your dollars, starting a savings account or navigating financial ups and downs, we’re here to help.
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