The word “budget” can cause negative feelings and anxiety for many, but a budget, also known as a “spending plan”, is just a tool you can use to help you gain control of your money and your expenses and help you improve your financial habits. But how does one go about creating a budget?
- Track Your Income – Get a total picture of your income (frequency of each income source received & how much from each income source). You have to know what’s coming in before you can plan for what’s going to be spent.
- Track Your Spending – Track your spending for one month. Then analyze your spending by each category (housing, utilities, food, etc.). Keep your receipts and review your bank statements. Below is a sample “spending tracker sheet” that you can, excerpted from CFPB’s “Your Money, Your Goals” Toolkit. (https://www.consumerfinance.gov/consumer-tools/educator-tools/your-money-your-goals/toolkit/, p. 84)
- Identify Your “Needs” vs. Your “Wants” – Are you spending money on items you don’t need? Needs are things you must have to live such as shelter, utilities, food, and transportation. Needs could also include obligations such as debt, child support, alimony and student loans. Wants are things you can choose to live without. For example, having a reliable car to get to work is a need. But getting a brand new car might be more of a want. But it is not always that clear cut, because one person may see it as a want and another may see it as a need.
- Cutting or Reducing Your Expenses – Taking a hard look at your total expenses and determining areas where you may be able to cut out the expense or reduce it can help you free up money for what you need most. It can also give you more money every month to save toward your goals, such as emergency savings, paying off debt, and saving to purchase a vehicle or a home.
- Examples: Down grading your cell phone plan and internet / TV services or changing to cheaper plans; car pool with coworkers/friends a few days per week instead of driving every day; cut back on eating out by bringing your lunch to work or making your own coffee at home; cancel unused services / memberships.
Try the spending tracker for the next month and see how it goes. In the next article, we will cover some easy ways for creating a “bill calendar” and prioritizing bills when payment dates don’t always match when you get paid.
Rebecca Grant is the Financial Coaching & Savings Coordinator at MaineStream Finance, a Penquis CAP subsidiary. She manages the Maine Family Development Account (FDA) Program, helping Mainers save and meet financial goals.