Let’s be honest. Making a budget is something most people never do. But everyone should. It’s the only way to know for sure how much money is coming in and going out each month — and how that money is being spent.
Taylor Bank’s Shannon Lewis and Margaret Mudron often work with customers and students on financial literacy issues. They say the ability to live within a budget doesn’t necessarily depend on how much money you earn. “It’s more about how you handle it,” says Lewis, Assistant Vice President, Branch Manager/Relationship Officer. “Whether you make a little or a lot, living within your means is a learned skill. There are folks on fixed incomes who do just fine because they’re careful and they keep track. And others who earn a lot but run into trouble because they’re not paying as much attention."
Separating Wants and Needs
Making a budget is not hard. First, determine your average monthly household income. Then list your expenses, across three categories.
- Fixed expenses: Payments you MUST make on a regular basis, like housing, utilities, taxes, vehicle registrations, and insurance.
- Flexible expenses: Items like groceries and clothing that are regular and necessary but can vary from month to month.
- Discretionary expenses: Fun stuff like travel, hobbies, and entertainment. These are the things you WANT to do, not what you NEED to do. For the last two categories, review several months of expenses to get your monthly average.
When you break it down this way, patterns become easy to see. Ideally, you will have more than enough income to cover all those expenses. If not, look for simple ways to cut back. Maybe do more home cooking? Get a lower-interest credit card? Be less generous with gifts? These kinds of small changes can have a big impact over time.
Some other things to consider:
- Unexpected medical, home, or auto expenses can be major budget-busters. To reduce these risks, make sure you have good insurance for each.
- Don’t forget to pay yourself! That means putting some money each month into a short-term emergency fund and investing some for retirement. Longer-term steps to ensure your financial future might include opening a savings account and putting a small portion of your income into it each month.
According to Margaret Mudron, Branch Administration Assistant, making a budget is especially important in today’s digital world. When people paid in cash and balanced their checkbooks each month, they probably had a better handle on their spending patterns. But today, “It can be harder to really grasp where the money is going,” says Mudron. “A budget can be a real eye-opener and help people see where they can make positive changes.” If you’re having a hard time making ends meet, don’t try to fix everything at once. Set realistic goals and work toward them step by step. One thing for sure, says Lewis, is that “denial is not a good tactic. It can be scary to see it all written down. But step one is to make it less scary.”
For more tips, tricks, and tools to get your financial future on track, check out our Financial Calculators — with customizable expense forecasting for everything from retirement and savings, to insurance and debt management.