Making a budget can be intimidating. Sticking to it can feel impossible. But a budget simply tells your money where to go. So if you’ve ever uttered the phrase, “Where does all our money go?”, here are 4 steps — and a few tips — for making and sticking to a budget.
Step 1: Add up your income.
Income and expenses are the two building blocks of a budget. The key is to track both each month. Start by writing down any sources of income. Most income is fixed and doesn’t change, like a paycheck. However, if you have variable income, such as a side hustle, include a monthly ballpark average. Remember, be honest with yourself. Nobody needs to see your budget but you, and a budget only works if it’s accurate.
Step 2: Add up your expenses.
Next, write down all your monthly expenses. Expenses also fall into the two categories of fixed or variable. Again, be honest with yourself. It doesn’t help you or your budget to pretend you’re not stopping at Starbucks every morning.
Fixed expenses can include:
- Loan payments
Variable expenses include:
- Dinning out
Step 3: Subtract your expenses from your income.
Now comes the fun part (or at least the enlightening part). Subtract your expenses from your income. If the total is less than zero (in the negative), think about what expenses you can eliminate or reduce. Consider taking your lunch to work every day or foregoing your morning latte. It can be exciting see how trimming daily or weekly expenses adds up.
Step 4: Stick to it.
Seeing all of your expenses on paper can shed light on your spending habits, and giving your money purpose can help you align your habits with your goals. Set aside 15 minutes each month to review how you’re doing. On the months you do well, give yourself a pat on the back. That sense of satisfaction can serve as motivation moving forward. On the months you don’t do so well, you’ll be more motivated to bounce back in the months ahead. Don’t stress yourself out pinching every penny, but don’t let six months pass before you see how you’re doing.
A few tips to consider:
Don’t let unemployment undo your budget.
If you’re between jobs, a budget is even more essential. Account for lifestyle changes until you can return to your ideal income. Now more than ever, it’s important to be honest about where your money is going.
Have an emergency fund.
If the past year has taught us anything, it’s that life is unpredictable. If you subtracted your expenses from your income in Step 3 and got $0, good for you. But it might not be enough. Look for ways to cut expenses or increase your income to put extra money aside. Just in case.
Find the right tool for the job.
Gone are the days of clunky spreadsheets and notebooks to track your budget (although do whatever works for you). LMCU offers an easy-to-use budgeting tool that is free for all members. To use the budget tool, simply login to Online Banking and go to the 'Budget Tool' tab. You can watch a tutorial and read FAQs on how to use it. The budget tool is also available inside our Mobile App. After you login, go to the Menu and click on 'Budget Tool'.
For more tips on how to stay healthy, wealthy, and wise, check out our podcast, Wallet Wisdom. You can find us on Spotify, Apple Podcasts, and Google Play.