Budgeting 101


Couple working on their effective budgeting plan.

Did you know that 60% of Americans spend with no budget? Maybe you think it’s too early to start budgeting, or maybe you think it’s too late. We’re here to tell you there’s no such thing! A budget is the key to a financially healthy life and can help you plan for your goals as well as for the unexpected events life may throw at you.

There’s a whole world of budgeting tips and tricks that you could get lost in, so we’ve narrowed it down to five key steps that will help you create a monthly budget and save your financial future!

“A budget is telling your money where to go instead of wondering where it went." 

- John Maxwell, New York Times bestselling author, coach, and speaker.

1. determine your financial goals

Before you even start to think about a budget, it’s important to think about what you want a budget to do for you. Do you dream of becoming a homeowner someday? Have you thought about when you’d like to retire? Your budget allows for planning your future with financial goals in mind, and if you follow the budget, those dreams can become a reality.

emergency fund

Before you can achieve any of your financial goals, you need to consider the unexpected. The first place you should start is with an emergency fund. It’s recommended that you have at least three to six months of your monthly expenses saved up. Take 2020 as an example: so many people lost their jobs unexpectedly due to the pandemic. If you’re in a situation like this, you want to be prepared financially to be out of work for a while and still be able to cover your expenses.  

Three to six months of expenses sounds like a lot of money to save up, so consider starting by saving up at least $1,000. Then continue to grow that emergency fund as you go.

short-term goals

Where do you want to see yourself financially in five years? Do you want to pay off student debt? Maybe you’re looking to save up enough money to move out of that apartment and into your first home sweet home! Write down your financial goals, how long you think it will take you to achieve them, and how much you think that goal will cost. Take time to look at the savings accounts your financial institution offers.

long-term goals

You’ve mapped out your five-year plan, but where do you want to be in 10 years? What about 20 and 30? Here’s where planning for retirement falls. Did you know that 33% of American adults have not started saving for their retirement? That’s definitely something you want to be prepared for! Maybe your workplace offers a great retirement plan you should jump on and have the funds automatically transferred from your paycheck. 

top tip: Remember to make your goals SMART goals! That means making them Specific, Measurable, Attainable, Relevant, and Time-Based. You don’t want to set goals that aren’t realistic enough for you to actually achieve.

2. calculate your total income

To start your budget, you obviously need to know how much money you get paid on a monthly basis. Depending on what you do for a living, this number could fluctuate. If you’re self-employed and your total pay varies from month to month, this could make creating a budget a little more challenging than someone who's paid a salary and knows what to expect every paycheck down to the penny. However, it’s not impossible. Calculating your income will not be a one-stop shop. You may want to revisit this every month to get a good idea of how much money you’re actually bringing in.

top tip: When calculating income, it’s not a good idea to round up. You don’t want to plan for expenses with funds you don’t have. If you must, round down. Anything extra can be put in savings or used for a little fun!

3. calculate your expenses

Bills, bills, and more bills. Next, it’s time to start calculating all your expenses for the month. How much do you owe on your Auto Loan this month? Groceries, gas, electricity, rent, or Mortgage payment? Compile a list of every payment you need to make and how much they each cost. Your total income minus your total expenses equals what you have left to spend. Simple right? Some people encourage the “zero-based budget.” This means that every month when you set your budget, every single penny that comes in has a place to go.

4. change your spending habits to match your budget

Do you stop to get coffee on your way to work every morning? That $5.00 coffee adds up. In just one week, you’re spending $35.00 on coffee, that’s $150.00 a month, and that’s a whopping $1,825.00 a YEAR! Does this align with your short- and long-term savings goals? After you sit down and take a long hard look at your goals and your budget, you may decide that special coffee runs are only for Fridays. This takes discipline and a lot of hard work to do, but in the end, it pays off… literally!

top tip: Keep your goals in mind when shopping. A good mantra to keep in mind is, “Does this support the life I’m trying to create?” If it does, great! If not, then move along. You’ll be happy you did!

5. stick to it!

Make budgeting a habit and stick to it. Ensuring that you know your financial situation is very important and can be life-changing. We understand that budgeting can be difficult at first, but later on in life, your financial health will make it clear that you took the right steps.

It may be a good idea to reach out to your financial institution to see how they can help you save money. That could mean opening a certain type of savings account or even refinancing some loans to get cheaper rates and make your monthly payments lower!

get started!

Ready to get started? Start managing your money today instead of letting your money manage you and create a better financial future for you and your family one month at a time. BlueOx Credit Union offers a multitude of savings accounts that can help you organize your money and track your progress toward your goals, like Christmas Clubs or Vacation Clubs.

Want to get the kids involved? Teach your kids how to manage their money at a young age with BlueOx Youth Accounts! Today’s youth are never too young to start learning good financial habits.

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