Do you ever wonder where your money goes each month? Does it seem challenging to get ahead? If so, establishing a budget can help keep track of how you spend your money and help you reach your financial goals.
Examine your financial goals
Before you establish a budget, examine your financial goals. Start by making a list of your short-term goals (e.g., new car, vacation) and your long-term goals (e.g., your child’s college education, retirement). Next, ask yourself: How important is it for me to achieve this goal? How much will I need to save? Equipped with a clear picture of your goals, you can establish a budget to help you reach them.
Identify your current monthly income and expenses
To develop a budget appropriate for your lifestyle, identify your current monthly income and expenses. You can keep track of it using pen and paper, or you can use a software program available and designed specifically for this purpose.
Start by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends and interest. Next, add up all your expenses. To see where you have a choice in your spending, divide them into two categories: fixed expenses (e.g., housing, food, clothing, transportation) and discretionary expenses (e.g., entertainment, vacations, hobbies). You’ll also want to identify any out-of-pattern expenses, such as holiday gifts, car maintenance, home repairs, and so on. To make sure you’re not forgetting anything, consider reviewing past bank statements, credit card bills, and other receipts from the past year. Finally, as you list your expenses, it’s important to remember your financial goals. Whenever possible, treat your goals as expenses and contribute toward them regularly.
Evaluate your budget
Once you’ve added up all your income and expenses, compare the two totals. To get ahead, you should be spending less than you earn. If this is the case, you’re on the right track, and you can begin looking at how well you use your extra income. If you find yourself spending more than you earn, make some adjustments. Look at your expenses closely and cut down on discretionary spending. And remember, if you do find yourself sometimes failing to meet your budget, don’t worry! With continued determination and self-discipline, you can get it right.
Monitor your budget
Once you feel good about your budget, you’ll need to monitor it periodically and make changes when necessary. But keep in mind, you don’t have to keep track of every penny you spend. In fact, the less record keeping you have to do, the easier it will be to stick to your budget. Above all, be flexible. Any budget that is too rigid is more likely to fail. So be prepared for the possibility of the unexpected (e.g., a leaky roof, failed car transmission, etc.).
Tips to help you stay on track
- Involve the entire family: Agree on a budget up front and meet regularly to check your progress
- Stay disciplined: Try to make budgeting a part of your daily routine
- Start your new budget at a time when it will be easy to follow and stick with the plan (e.g., the beginning of the year, as opposed to right before the holidays)
- Find a budgeting system that fits your needs (e.g., budgeting software)
- Distinguish between expenses that are “wants” (e.g., designer shoes) and expenses that are “needs” (e.g., groceries)
- Build rewards into your budget (e.g., eat out every other week)
- Be mindful of using credit cards to pay for everyday expenses: It may seem like you’re spending less, but your credit card debt may increase
To consider how to align your budget with your overall financial plan, and support both short-term and long-term goals, contact an Arvest Wealth Management client advisor. They can work with you to evaluate your current circumstances and help create your unique plan. Looking for additional financial education resources? Check out the Arvest Learning Center to explore self-guided resources designed to help you reach your goals.
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