Resolution #2 – Create a Spending Plan
Published on 1/2/2020
3 Steps to Follow When Making a Yearly BudgetFiscal fitness requires having a plan. Annual budgets aren’t just for big corporations or the wealthy. Whether you’re planning for a vacation, saving for retirement or buying a home, a yearly budget is very important. Don’t make the mistake of thinking that by spending as little as possible you can take control of your financial life.
When planning your budget, it’s important to be accurate. Say you only budget $100 per month for groceries. Can you honestly stick to that? Or to achieve that $400 per month goal, would your family have to eat a diet of ramen noodles? Time to rethink your budget and be realistic. Many people make the mistake of underestimating expenses – usually things they need – in order to spend more for things they want. Sure, it may look good on paper to budget $100 a month for groceries so you can spend $300 a month on entertainment, but it will likely lead to overspending, derailing your fiscal fitness goals.
Time to put in the work by creating a realistic spending. Follow these steps:
STEP 1: Start by estimating your income. List all the money you can expect to earn or receive during a 12-month period. Sources of income include your wages/salary, tips, bonuses, commissions, rents and royalties, disability or social security benefits, alimony and child support. If you are unsure of your annual income because you’re a freelance worker or an independent contractor, it’s always best to underestimate your income to ensure you have enough money to cover your necessary expenses.
STEP 2: Research your spending habits. Most financial institutions have a feature in their online banking apps or websites that will show you how you spend your money. Orlando Credit Union offers Money Management, an online budgeting tool. Simply set up your financial accounts including credit cards and banking accounts to see all of your income and spending. Knowing exactly how you spend your money is crucial for an accurate budget.
STEP 3: Map out your future expenses. Start with your fixed expenses. These are constants like your rent or mortgage payment each month, your car payment, your internet/cable bill, credit card payments and student loans. Go through your bank statements and make sure you write down all the recurring payments before you move on to your variable expenses. Variable expenses are things you spend money on every month, but the amount can vary. These are things like your utility bill, which can increase in the summer and/or winter months. Variable expenses can also include things you do not spend money on each month, but you know you will need to set aside money for eventually, like back to school shopping or Christmas presents.
If your bank does not have a budgeting tool, there are several free apps that can help you achieve your goals, such as Empower, PocketGuard and Goodbudget. Once you have your spending plan set up, the hardest part is sticking to it. However, just like any fitness routine, once you get the hang of it, it will get easier. .