Budgeting Basics: How to Make Your Money Work for You

It’s easy to think budgeting is only necessary when you’re in a tight spot. The truth is, the best time to build (and revise) your budget is when everything is going according to plan. Think of your budget as a boat — would you rather know where the life vests are before the emergency, or during it? 

Thankfully, building a budget is much easier than building a boat — all you need is a pen and paper!

‍

Gather your materials

Step one is all about material gathering! In this case, you’ll build your budget using your income after taxes. If your paycheck changes month-to-month, use the lowest number for your budget. Remember, it’s better to have more life vests in an emergency than to miscalculate and be stranded!

‍

What’s a need? VS What’s a want?

Now comes the hardest part — separating your needs from your wants. Yes, your weekly coffee budget and favorite streaming service are very important, but if you get shipwrecked on a deserted island, your Netflix login wouldn’t help very much. 

‍

Think of things you can’t live without: a roof over your head, food, or transportation to get to work. These are your needs. Versus things that make your life more comfortable: all your streaming services, a brand new gadget, or take-out Fridays. Aka, your wants.

‍

Write out your expenses 

Now, visualize all of your monthly expenses. The goal of this step is to see where your money is going and help move it to where it’s needed.  

‍

Break up your expenses into three categories: Fixed expenses, variable expenses, and other expenses.

‍

Fixed expenses are the same every month. Reference your list of needs from the step above; many of your fixed expenses will be needs. Consider:

• Rent/Mortgage Payments
• Phone Bill
• Car Payment(s)

‍

Variable expenses change every month. Like the tide, you can expect them to show up, but sometimes they’re higher or lower. Consider:

• Groceries
• Utility Bills
• Your weekly caffeinated treat

‍

Other expenses are the random expenses that show up often, but when and where are a little fuzzy. Consider:

• Holidays & Birthdays
• Haircuts
• Treat-Yourself Days

‍

Try to avoid guessing the amounts for your variable and other expenses. Go back a few months (even a year, if you can) and use the average costs for your budget.

‍

Factor in your debt

Now that you know how much it costs to live monthly, it’s time to add your debt payments to your budget. Credit card debt, loan payments, Venmo requests you’ve left unanswered — list them all! Then, choose how you want to pay them off. 

‍

We recommend the following tactics (choose whichever works best for you):

• Avalanche method: Pay off the highest debt first, and work your way to the lowest. 
• Snowball method: Start with the lowest payment and work your way to the highest.‍
• High Credit Utilization (for credit cards): Pay off the credit card with the highest balance to avoid costly interest payments.

‍

Reel in savings

With every expense and debt accounted for, it’s time to reel in savings! 

‍

If you’re new to saving, consider starting an emergency savings fund. Your emergency fund should have about six months' worth of monthly expenses that you can use in a pinch. 

‍

Already have an emergency fund? Consider setting a savings goal for your next big adventure. Factor a savings minimum into your budget, and reach your goal in no time!

‍

Remember, your budget is a boat, carrying you to your financial destination. Like a boat, your budget needs a little TLC every once in a while. Make sure to regularly revise your budget, keeping it up to date as your finances change!

‍