Did you know one-third of Americans create and maintain a budget?

A budget can help you stay on top of your finances by helping you plan where your money will go instead of wondering where it went. Try these steps if you’re looking to create a budget or looking to update your current one.

  1. Tally up your income: You may know what your annual salary is, but once taxes, benefits, and retirement contributions have been deducted, the amount of money that is deposited in your account may be lower than what you anticipated. Look over the digital or physical paycheck stubs for all the wage earners in your family to determine what your take-home pay or net income is.
  2. Identify expenses: Now, we need to determine how much of your net income is being accounted for by your current expenses. Divide your spending into two categories — fixed and variable. Fixed expenses are the things you pay the same amount for every month, such as phone bills and auto loan payments. Variable expenses change month to month and include groceries and utility bills. 
  3. Get the Calculator Out: Next, you’ll do some simple math to figure out the difference between your income and your expenses. Ideally, you want your take-home pay to be more than your total expenses. If your expenses exceed your income, don’t panic. The next steps will help you find areas in your budget to help you save. Whether you’re over or under budget, it’s still important to make financial improvements.
  4. Set Goals: Motivate yourself by making note of monetary goals you’d like to achieve. They can be short-term goals like paying for a new appliance or long-term goals such as saving for retirement.
  5. Crunch the numbers: With your fixed and variable expenses identified you’ll be able to see areas in your budget you can do better in. Fixed costs are difficult to alter, but if you take a look at your variable costs you may be able to see ways to lower or eliminate those dollar amounts. Maybe you can be more energy efficient at home to lower your light bill or take your lunch to work to stop eating out as much. Use your goals to help you decide what expenses you  need and which ones you want. Living without some wants can help you save more money to pursue those goals.
  6. Create Guidelines: Decide how much of your income you’d like to go towards your fixed and variable expenses as a guide you can use to improve your financial habits. Try to avoid making these guidelines too rigid and unattainable to ensure your budget goals aren’t impossible to reach. A good rule of thumb is that 50% of your budget should go toward fixed expenses, 30% toward variable or flexible spending items, and 20% toward your goals. 
  7. Review: Get in the habit of checking in with your budget to track your progress and make adjustments as needed depending on changes to income or when debt is paid off. As time goes on, you’ll find new and better ways to make the most of your money.

We hope you learned more about how to calculate and track the expenses that are best for your needs. At AFFCU, we’re committed to helping you achieve your financial goals. Learn more about the perks of AFFCU Membership.