Take Control of Your Finances: Creating a Budget

Do you sometimes run out of money before you run out of month? Taking control of your finances by creating a monthly budget can help with that! It’s time to understand your big picture, set some goals and take ownership of your money. But sometimes it’s hard to know where to start. Read on to learn some basic steps to get your spending in check with a monthly budget, part one of our Take Control of Your Finances series.

1. Calculate your total income.

Start by calculating your net take-home pay, or your income after taxes and any deductions such as health insurance or retirement plan savings are removed. This will offer you a baseline starting point. List each reliable monthly income source you have and the minimum you anticipate bringing in. Listing your minimum expected income ensures you don’t overextend your budget based on what you might take home each month.

2. Create your list of monthly expenses.

This is a big question for many people: where is your money going? Taking time to understand where you are spending money is an important foundational step of taking control of your finances. Start by looking at your monthly spending from all sources, whether it’s your checking account, your credit card(s) or another source. Your APCO online banking or mobile banking app will make it easy to quickly create a list of your expenses and associated costs.

Break these expenses down into two categories:
• Needs – These are your true necessities, things like your mortgage or rent, utilities, groceries, gas, car payments and insurance.
• Wants – These are the nice-to-have items, things like entertainment, eating out, travel and clothing.

3. Create your list of annual expenses.

Think about the things that aren’t always monthly but are at least annual expenses, possibly even quarterly expenses. Consider things like insurance (life, car, renters or home), subscriptions, property taxes and anticipated gifts for birthdays and holidays. Note when they are due so you can easily add each to the appropriate month’s budget.

4. Make your plan.

Now that you have a better understanding of your income and expenses, you can create a plan for spending going forward – a budget.

Budgets come in all formats, but many people break it down into 3 primary categories: needs, wants, and savings/debts. One common approach uses a 50/30/20 rule where you allocate 50% of your income to needs, 30% to wants and the remaining 20% to savings or debts.

Understanding this model allows you to tailor your budget. You may want to adjust percentages or add categories, such as adding a percentage for donations or a percentage to create an emergency fund. This is your opportunity to make your budget reflect your desires and needs.

5. Make any needed adjustments.

Creating a budget can reveal habits you may want to change. Maybe you want to save more. Maybe you want to start setting aside money each month toward a specific goal like travel or a new piece of furniture. Or maybe you have some debt to tackle. Take time to assess and make changes that fit your current budget needs.

6. Track your budget and adjust each month.

At the start of each month, set up your budget, pulling in any specific needs for that month from your annual expenses list. It may require that you adjust your wants or savings/debts categories for the month, but you’ll learn to balance those expenses as they come.

Congratulations on creating your budget and taking control of your finances! If you realize you need some help, your Credit Union is here for you. Our goal is and always has been to help our members do better financially. We’d welcome the opportunity to discuss your needs and how we might be able to help power your financial life. Reach out online, stop by your local branch, or call our Contact Center at 1-800-249-APCO (1-800-249-2726).

Ready to take the next steps in taking control of your finances? Check out part two of our Take Control of your Finances series, 4 Tips Beyond Your Budget, here.