Building a Budget

A budget helps determine what you can and cannot spend, so you have money for the things you need, can save for the things you want, and are prepared when life throws you a financial curveball. A budget can also help in paying down debt faster and in some cases avoid the need to borrow in the future. Would you take a road trip without a map or some type of GPS to lead the way? Think of a budget as a road map for your finances!

Your Income

Your income for budgeting purposes is not your salary or hourly wage, it is your take home pay, or “net income” after various state, local, and federal taxes are withheld, and any costs for benefits. Assuming you work the same number of hours a week, your take home pay should remain relatively consistent from one pay period to the next.

Your Expenses

Before you decide how to spend that paycheck, you must first separate what must be paid, purchased and saved (your “needs”) from what may be paid, purchased and saved (your “wants”). This is where your self control comes in to play. A “need” is anything necessary to sustain your life and your home. Needs may include required medications, rent, a car payment, car insurance, utilities, basic food, and so on.

A “want” is anything that is not necessary, but would “be nice to have” (internet, cell phone, entertainment, eating out, gifts, and so on). Spending money on “wants” is discretionary. Actual expenses for each category can vary somewhat from month to month, but the most important thing is that you identify all your expenses, and categorize them into “needs” and “wants.”

Your Budget Plan

When you get that paycheck, your take home pay must first pay for your “needs” before you spend money on your “wants”. Some “wants” may need to be saved for over a few weeks or months, such as a new TV, car, or furniture, to avoid going into debt. Debt is not your friend. Early each month, create a list of expenses and income for the month, and note the amount you anticipate spending on each item, and actual amounts spent. Track how you spend cash withdrawals, checks, and every time you use your debit card, or credit card. Over several months, you will be able to see how you spend your money, and where you may be able to make adjustments to your spending habits to allow you to save more, or better meet your financial obligations. This is your first “financial plan.”




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