How Do You Budget?
If you want to take control of your money, you need to make a budget. We prefer to call this a spending plan. After all, you make the money; you should decide how it is spent. Creating this plan can seem overwhelming. What might work for one person may not work for you. In addition, a solid budget can help reduce the stress and worry caused by too many obligations and too little cash.
In 2020, the Federal Reserve reported over a third of American adults had difficulty paying an unexpected cost of $400 with cash, and over one-quarter of adults had one or more bills each month they were unable to pay in full, or they were one $400 financial setback away.
Depending on your money goals and financial circumstances, a few budget options may seem more appealing to you. Budgeting does not necessarily take away all the fun in your life- it is quite the opposite. If you budget properly, you will have the freedom to tell your money where to go. Nevertheless, how do you budget?
The first step to creating a budget is to identify your money goals. Where do you want your money to go? A few common goals include getting out of debt, down payment for a house, emergency fund savings, vacation savings, wedding costs, and education. No matter what your income level is, a money goal will help motivate you to work harder and stay on plan.
Now that you know where you would like your hard-earned money to go, start tracking it. As you track your money, you may realize savings opportunities you never saw. For instance, you might spend money on unnecessary takeout or purchase items you never use. Take this as an opportunity to cut back or sell your items to make more cash.
Select a Budgeting Method
Finally, it is time to select a budgeting method. You may end up creating your own method, but here are a few to consider.
A zero based budget is great if you have a tight or irregular income and want to get out of debt. Every dollar you earn is counted towards your either needs, wants, savings, or debt repayment. You give every dollar a purpose. By doing so, you should be left with a zero value when you deduct your expenses from your income. One way you can incorporate this style of budgeting is by using the envelope system. The envelope system is when you physically portion out your money into envelopes specific to your spending categories. This system allows you to control your spending and stay on budget.
A savings first or pay-yourself-first budget is great for those who have savings goals and would like a hands off and low maintenance approach. Instead of building your budget around your expenses, you build it around your savings. Once you determine how much you need to save, you can automate this amount to come out of your income and go towards your savings account. Then, you are free to spend the remaining money on your needs and wants. You may even wind up spending less with this style of budgeting.
An extreme budget is for those in need of immediate savings or debt repayment. Extreme budgeting involves little to no extra spending on non-essential items and tons of savings where possible. The main question you need to ask yourself is, what purchases can be eliminated? With this type of budgeting, a meal plan is vital to save on food costs. When you go to the grocery, stick to your list. Do not buy items just because they are on sale. In addition, if you want to go out you should consider activities that cost little to no money such as parks, museums, and art galleries. Some extreme budgeters will even try to extend the shelf life of products like shampoo by watering it down or choose to take “navy showers” in order to conserve water and save money.
In the end, we implore you to devise a budget that makes the most sense to you and fits your financial situation. Moreover, you should explore personal financial management tools available to you that can help manage your budget and set goals, such as Gulf Coast Bank & Trust Company’s My Money. To learn more about our banking products and get started on your budget, contact a banker or visit a branch location today.