Do you think of budgeting as a chore? Do you only think of budgeting when you’re trying to save money? We want to help alleviate some stress when it comes to budgeting and show you how easy it can be. Budgeting is not just about saving; it is the process of calculating how much money you must earn or save during a particular period of time, and of planning how you will spend it. We would like to share with you a basic process for budgeting, tips for reducing expenses and debt, and provide you with resources to help you be financially responsible.
Basic Process for Monthly Budgeting
- Gather information – Here is a list of things you may want to gather to get an accurate accounting of your income and expenses.
- Monthly statements from your financial institutions
- Loan statements, including payoff amount, interest rate, minimum monthly payments and terms
- Healthcare statements and invoices for medical expenses
- Income tax documents
- Property tax assessment or bill
- Life insurance statements
- Retirement policies
- List all your sources of income. Try to include only the items that repeat. If your income fluctuates monthly, get an average amount by taking the amounts for 3-5 months, add it all up and divide by the number of months you are averaging. For example:
$9742.00 / 3 = $3247.33 Average Monthly Income
- Make a list of all your monthly expenses. If the amount varies, take an average using the same process as we did for averaging the monthly income. We will talk about contingency items (emergency repairs, doctor visits etc.) and entertainment (movies, restaurants, vacations) budgets in just a minute. For now, only list the expenses you have that are reoccurring every month.
- Calculate – Add up your income, total your expenses, then subtract your expenses from your income. This will give you the difference. Hopefully the amount is a positive number. If you find that your expenses are greater than your income, continue reading for ways to reduce debt and cut back on expenses. Here is what your calculations will look like:
= $987.00 Difference
There are many different ways to track your budgeting. Here are a few:
- Budgeting Software
- Microsoft Excel Templates
- Apps for Android and IOS
- Notebook and Pencil
Ascent Credit Union offers a free service to all members called E-Track. With E-Track, you can:
- Quickly view all finances
- Connect external accounts, loans, credit cards, CDs, etc.
- Set up spending budgets
- Input income and expenses on a calendar view
- Set up goals
- See calculated net worth
- Set up alerts
If you start using one method and it is not working for you, don’t be afraid to change your process. The information that you are putting in is still the same, you just have to enter it in a different place.
- Planning – Now you can take the amount you have left over (difference) and plan for how you will Spend or Save this amount. If you have a greater amount in expenses than income, simply setting up a budget will help you determine ways to change your spending behavior, resulting in financial peace-of-mind.
Think about items that pop up each month that were not expected, such as doctor visits, auto repairs, birthdays, wedding gifts, etc. It is great to have an allotted amount for these unexpected items so you don’t have to rely on savings. Set an amount and see how it carries you for a couple months. If you’re finding that you don’t have very many contingency items, you can always put the money into savings.
If your contingencies are more than your allotted amount, instead of adjusting the amount, you could try to solve the problems that keep arising. For instance, if you notice that you are repairing your car often, it might be time to set up a savings account for a new auto.
Ascent Credit Union offers a MyFund Savings Account with limited withdrawals that would be ideal for saving for a big purchase, like a car or vacation. MyFund Savings accounts also offer +Sweeps. With MyFund+Sweeps, any cash amount that is not a whole dollar will be “swept” into a MyFund Account at the end of each day. For example, if you have $79.55 in your debit/checking account at the end of the day, $0.55 will be automatically moved into your MyFund Account. The daily transfer will never exceed $0.99, and the sweep will never cause your account to go negative.
Think about how many times you eat out, go to the movies, go on vacation or buy snacks at a gas station. Create an amount that will be allotted for each month for entertainment and try to stick to it.
Borrowing money, or going into debt, is often seen as a bad thing. We want you to know that there is a difference between bad debt and good debt. To learn more, read this article from our blog LEARNING THE DIFFERENCE BETWEEN GOOD AND BAD DEBT.
Once you know what good debt is, check out our options for borrowing money. Each of our loan officers make it easy to get you set up with the best loan for your situation. Ascent offers personal loans, vehicle loans and mortgages.
If you are looking to purchase a home, auto or anything that needs a loan, you will need to know what your Debt-to-Income Ratio is. Debt-to-Income Ratio is a number that is calculated by adding up your recurring monthly debt payments (including credit card, student loan, mortgage, auto loan and other loan payments) and dividing the sum by your gross monthly income (the amount you make each month before taxes, withholdings and expenses).
Lenders use DTI to measure your ability to take on additional debt and still keep up with all your payments—especially those on the loan they’re considering offering you. Knowing your DTI ratio and what it means to lenders can help you understand what types of loans you are most likely to qualify for. (Experian.com, 2020)
Click HERE to read 10 easy ways to decrease expenses from Dept.Org.
So, whether you’re saving for a big purchase, a rainy day, college or retirement, each takes some planning and thought. Budgeting helps you plan for short term and long term goals, and Ascent Credit Union offers a plan for any of your goals. Our staff is here to help. Come visit a branch to open a savings account for your child, get information on saving for retirement or finding out options to make the best use of your money.