Budgeting 101

Authored by Charnell Morud, Verity’s financial coach

Budgeting – the dreaded task of committing to yourself to handling your finances better, or at least know where your money goes each month. But, there is good news! It doesn’t have to be difficult or time consuming. The basic premise is to have a solid grasp of your monthly income and expenses. Budgets have two components: fixed and flexible expenses. A third component is savings, but you must first determine if you are positioned to do so or if this is an immediate goal to address.

Fixed expenses are your core expenses, such as housing, utilities, insurance and debt. Because there is much competition for consumers business, it is a good practice to contact folks like your insurance agent, cable company and cell phone carriers to review your rates annually. You can determine if you are still receiving a competitive price and evaluate whether you are actually using everything you are paying for.

Flexible expenses are typically related to entertainment, pocket money (think coffee, small purchases, etc.) meals out, groceries, etc. These are expenses you can change to accomplish new goals.

Most people will feel strongly about creating and following a budget while preparing for a major purchase or a life changing event. Others will begin budgeting when they become tired of being in debt. These are all good motivations, but budgeting should really be a part of your monthly routine even when there isn’t a “reason.” Budgeting helps keep goals at the front of your mind and can keep your spending in perspective. Without that quick check up (budgeting), we don’t tend to pay as close of attention to our spending habits.

So, how do you create a budget and actually make it work? Here are a few tips:

• Keep your budgeting plan simple.
• Evaluate monthly due dates and align them with your paydays. A budget plan can be as simple as a notebook with Payday 1, 2, etc. and a list of who you need to pay and the amount. If you need more detail and help tracking expenses, there are great online resources. Mint.com is popular site, and Verity provides tools in Digital Banking.
• Understand that budgets don’t turn out perfectly each month. Evaluate what went right and what went wrong. Adjust for the next month and move forward!
• Use cash instead of a debit card until you develop a routine. It is harder to let go of hard earned cash than to swipe a debit card.
• Use a checkbook register or an electronic tracking sheet to record your spending. This keeps you mindful of how you are spending your money. It is a way of being in constant motion to achieve desired results.
• Develop a savings plan for expenses that are not billed monthly. These expenses include car maintenance, medical deductibles, etc.
• Pay down your debt. Carrying debt means your money is pre-spent and carrying debt can be expensive. Don’t let your credit report be impacted by carrying too much debt. It will lead to higher rates on future purchases.
• Practice paying for a major purchase to see how it impacts your budget. If you are considering a home purchase, increase your budget to include the new costs and practice it for a while. Put the money into savings. This will give you a good idea of adjustments you may need to make to afford the new home.
• Utilize budgeting and financial counseling services for help, tips, and free consultations. Verity Credit Union has Financial Coaches who help their members for free! Take us up on an appointment and start your budgeting process today! Balancepro.net has many valuable tools and offers debt management plans for those who need them!

If you would like assistance in creating a new budget for yourself, contact me. I’d love to help you!