How to make a budget

Budget = a spending plan

"Since taking Financial Survival and tracking what I spend every month, I've seen little amounts of money add up to a large lump sum that I could have used on a bill, or saved. I will keep practicing to be frugal and know where my money is going."Erinn Russell CG114 student

Now that you have identified your goals, you’re going to need to evaluate your budget. Maybe you feel like you don’t have a budget because as soon as your money comes in, it feels like it’s already spent. Everyone has a budget; sometimes you just don’t know it! Do you pay bills? Purchase groceries or food? Buy an occasional cup of coffee? If you ever do any of these things, you are working with a budget.

Maybe the word "budget" sounds too restrictive, like a diet. If so, make your "budget" a spending plan. With a spending plan you will take control of your money by choosing how you want to spend and save your money each month.

Track your expenses

The first step to creating a spending plan is to determine how much money you spend. To do this, you will need to track all of your expenses by writing down every dollar you spend for at least a month.  Print this budget to help you track your spending. In addition, many banks now offer a free expense tracking and budgeting tools that make this process much easier. Check with your bank on availability of these online resources.

As you start to track your expenses, it is helpful to break your spending into different categories. There are two main categories of expenses: needs and wants. Needs are expenses that are required for living such as rent, food, utilities, and transportation costs. Wants are the extra things you spend your money on such as dining out and entertainment.

Now that you know where your money goes, you will be able to set up a spending plan based on the information you have been tracking.

Create your plan

When creating a spending plan be sure that it supports your short-term, mid-term and perhaps even your long-term goals. Ask yourself, how long will it take? How much money will I need? How much time do I have? Do I have any money saved? What resources or information will I need? Once you have answered these questions, begin creating a spending plan that will propel you towards these goals!

At its most basic, a spending plan has two major parts:

Income:
money coming in each month
Expenses:
money going out each month
your total income:
your total expenses:

Balance your budget

It is important to review your spending plan monthly to make sure you are staying on track. Each month take a minute to sit down and compare the actual expenses versus what you had created in your spending plan. To do this, subtract your total cost from expenses from your total income.

If your end result shows more income than expenses. Great! There money left over that you can save for your long-term financial goals!

If you are in a situation where expenses are higher than income, there are two solutions to this problem, cutting costs or increasing income. To cut costs, you should look at your "wants" to find areas where you can make adjustments to bring you closer to your income.

Tracking your expenses and balancing your spending plan takes practice! Try not to get overwhelmed or discouraged — keep working at it until you get your spending under control. Realize that you are human and that you will occasionally overspend. But try to make sure your spending decisions are intentional — not emotional or out of control — and over time you will have a spending and saving program to be proud of.

Are student loans income?

Be careful counting student loans as income! When used wisely, loans can make your education possible, however only use loans to fill the gaps for things you truly need. What feels like income today will decrease your income later (because you have to pay it back), and for a lot longer than the time it took to rack up that debt! See how to check loans: know what you owe.

Infrequent expenses

Make sure you have a realistic spending plan! Remember to add things that you pay for one or more times during the year but not every month. Examples of this are car repairs, car insurance, and medical bills.

Take the amount you estimate it will cost you for the whole year, then divide by twelve to get your monthly amount. Save that amount each month, then it will be easier to pay these larger bills when they come in.

In case of emergency, save cash!

Many financial advisers say that once you gain control of your basic living expenses and reduce your spending, then you should think about setting up an emergency fund. An emergency fund is your financial cushion in case something unexpected happens. What are emergencies? An emergency might include dental expenses to repair a cracked tooth, or unexpected veterinary care for your cat that has eaten poisonous slug bait. It may be money you use in the case of a natural disaster, or for an unexpected car repair.

Studies indicate that people who don’t have an emergency fund are more likely to go into debt. It may feel like you can’t afford to put this money aside, but you can’t afford not to! Even college students need an emergency fund.

How much do you need in your emergency fund? There is no one right answer but many experts say you should budget three to six months of normal living expenses for emergency savings. Experts say students should keep $500 in an emergency fund.