How Budgeting Works
Understanding how much money you have coming in and how much you have going out is crucial to developing a long term plan for managing your finances, as well as setting and achieving financial goals (such as buying a home or retiring by a certain date). Having a budget may seem daunting or restrictive, but when approached the right way, making a budget will actually allow you more flexibility and financial freedom in the long run, allowing you to work toward your future with confidence.
A budget is simply a tool to help you plan for income and expenses during a specified timeframe. You can make a budget for a timeframe that makes sense for you – whether that’s weekly, every pay day, every month, etc. The important thing to remember that is in order for a budget to be effective, it should work for your specific circumstances.
That is why the first step in making a budget is understanding your financial situation and establishing the goals you want to accomplish with your budget. Having a budget without understanding your financial goals will not ultimately benefit your financial health. As Dave Ramsey says, “A budget is telling your money where to go instead of wondering where it went.”
The basics of setting up a budget are fairly simple: know how much money you have coming in, and then figure out your monthly expenses. Once you have your fixed and variable expenses down (mortgage/rent, auto payments, student loans, insurance, utilities, food, medical, etc.), be sure to plan for all remaining categories, including savings, charitable contributions, entertainment, dining out, shopping, personal care, etc.
Once you have the basic framework in place, you can begin to plan your budget to work toward bigger financial goals – saving for a down payment on a home, buying a car, planning a wedding or vacation, etc. Having a budget in place will allow you to maximize your income – paying down debt, building your savings, and achieving financial health. A budget also helps you identify areas where you can cut back spending, freeing up more money for savings goals or paying down debt.
There are many free budgeting resources, tips and tricks available online. Below are a few to help you get started. Find a budget approach that works best for you and your situation, and you will find it much easier to stick to your plan.
- 15 Practical Budgeting Tips
- 7 Tips for Effective and Stress Free Budgeting
- Basic Budgeting Tips Everyone Should Know
First Sentinel Bank’s mobile app allows you to tag expenses and income by category, giving you reports useful in tracking your income and spending by category. We also provide a host of financial calculators to help you create a budget, track income and spending, and work toward your financial goals. No matter where you are in your financial journey, First Sentinel Bank is here to provide the tools and services you need to help you achieve financial wellness. Keep in mind that the most effective budgets are flexible and easy to change as your needs change. Relax, keep your goals in mind, and watch your financial health grow as you build a solid foundation for your future.