Making a Budget

Chapter 2, Lesson 2

Achieving Financial Wellness

2

Ensuring that you finish each month without spending all of your income requires that you know how much you are earning, spending and saving. Set yourself up for success by creating a budget to help monitor your spending and saving!

Making a BudgetMaking a budget is an incredibly useful step in taking control of your finances. If you are making spending decisions on what you need and want without a budget, you may be spending more than you can actually afford.

Making a useful budget takes four key steps:

1. Identify your monthly income.

2. Identify your recurring expenses. Recurring expenses include necessities such as insurance, bills, food, rent or mortgage, etc.

3. Identify your discretionary spending. Discretionary purchases are those that are not needed, but money spent by choice.

4. Determine how you may want to reallocate funds. What areas of your spending can you reduce?

Following a budget long-term has been linked to building wealth and getting out of debt, but only 40% of American families are using this valuable tool!

Identify Your IncomeYour monthly income includes your salary, interest from investments, gifts, and other miscellaneous income such as alimony or child support payments.

Identify How Much You SpendKeeping track of what you spend is easier than ever! If you use a credit or debit card for most purchases, you may be able to identify your spending categories right from your bank statements. There are also apps for your smart phone or worksheets you can use to make this task easier. Apps to check out include: BUDGT, LearnVest and Mint. And a sample budget worksheet is included in Lesson 3 to get you started.

Tip: The more carefully you categorize your spending, the more useful your budget will be.

Ensuring that you finish each month without spending all of your income requires

that you know how much you are earning, spending and saving.

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Evaluate Your SpendingIf the result of your first month of tracking reveals that you are spending more than you would like to, it’s time to evaluate your spending.

• Look at your expenses and determine needs versus wants

• Keep spending less than your income. If possible, aim for your spending to be less than 90% of your income.

• Evaluate discretionary spending. Where can you spend less?

• Don’t forget about costs that seem fixed (insurance, internet, transportation, credit card fees, etc.). There may be ways you can save money by making adjustments to your current service providers.

Tips for Reducing Discretionary Spending• Entertainment. We all deserve the opportunity

to relax and blow off steam, but there are many possibilities to save in this area. Find other ways to enjoy your favorite form of entertainment. For example, rather than going to a movie one night a weekend, try switching to the matinee for discounted pricing. Skip the popcorn and snack at home before you go.

• Clothing. Have you been anxious to buy a new piece of clothing? Wait for a sale, coupon, or find something comparable for less. Still considering the same item? Try delaying the purchase to see if you still want it in a few days.

• Dining out. Reduce the frequency you dine out or eat takeout. Not only are you paying for the food, you pay for the experience, restaurant maintenance, salary of the staff, and tip.

• Grocery shopping. Look for sales and coupons in store circulars. Bring a shopping list and don’t shop hungry; this can help prevent impulse buys. Is there something on sale, but out of stock? Ask customer service for a rain check so you can cash in on the deal after they restock.

• Transportation costs. Look for carpools. Try public transportation. Walk when possible. Combine all your errands into one trip to save on gas, vehicle wear and time.

• Cable service. Bundle services when possible. Choose basic options rather than upgrading to plans with more than you actually need.

• Cell phones. Opt for family plans or plans that allow you to join with friends. Check to see if your employer offers discounts with certain carriers.

• Examine your vices. Do you have a soda habit? Coffee shop addiction? Smoke cigarettes? Drink alcohol? Cut back on these behaviors not only to save money, but to improve your health.

Next Steps1. Complete the Budget Worksheet

2. Take the Chapter 2 Quiz

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