As we kick off a new year, it’s the perfect time to check off a popular resolution: creating a budget.
When monthly expenses begin to pile up, it’s easy to ignore budget planning and hope that your monthly income covers all your costs and hopefully leaves a little extra for your savings account.
By sitting down now and planning your planned expenses for the year, you can make sure your income meets all your costs – both expected and unexpected – while giving you the flexibility to save for emergencies or to treat yourself and your loved ones.
While creating a budget can sometimes seem overwhelming, we’re here to help. Visit a local branch today to sit down with our team, and we can help make sure you’re making the most of your hard-earned money.
Calculate Income
The first step to creating a budget is calculating how much money you have to spend. Typically, this amount is your monthly net income (the amount of money you earn after taxes). However, your monthly income can also include things like child support, government benefits, or income from rental properties/investments.
Once you know how much money you have to spend each month, you can start to determine the best way to allocate those funds.
Determine Costs
Once you know your monthly income, you’ll want to calculate and categorize monthly costs. Often, people categorize their monthly expenses into two distinct categories: “needs” and “wants.” Needs represent costs that you have to pay each month, ranging from rent, groceries, prescription medications, gas, insurance, etc.
Wants represent costs like eating out, vacations, or entertainment.
You typically want to assign monthly income to cover the costs of your needs first, but it’s a good idea to plan for your wants. If you cut wants out of your budget completely, you’re less likely to stick to a budget and financial planning can begin to feel like a punishment rather than a goal.
One of the easiest ways to make a budget is to follow the 50-30-20 rule, which says you should spend 50 percent of your monthly income on needs, 30 percent on wants, and 20 percent on savings. As necessary costs continue to rise, it may not be possible to adhere to these numbers, but this rule can provide a basic budget outline to help you start your budgeting process.
Savings
While it can be tempting to spend your monthly income solely on needs and wants, saving at least part of your income can help you maintain your financial health and protect you from unexpected costs in the future.
Putting money toward your savings can help you stick to your budget, even if an emergency happens that requires extra funds.
Savings also don’t need to be reserved only for emergencies or unexpected costs. Once you have a nest egg of funds saved up, your savings can be used for vacations or fun expenses you wouldn’t otherwise spend money on.
Let KHCU Help
Here at KH Credit Union, we’re here to help. Visit us today, where we can discuss the checking and savings accounts that may be right for you to help you budget your money most effectively. We can also share resources we have to help you budget better and keep more of your hard-earned money in your pocket. We look forward to seeing you soon!