As people work at different paces to achieve financial wellness, one tried-and-true tactic applies across the board: maintaining a budget.
10 things to help you create a budget
People are budgeting more than ever, and nearly 9 in 10 think everyone should budget, according to Debt.com. Budgeting is a practical way to stay in charge of your money - even when life gets unpredictable.
Having a budget means knowing exactly how much is coming in and going out each month and planning where and when to spend. Plus, budgeting is essential if you want to pay off debt.
The following tips might come in handy as you embark on your journey to financial wellness, but remember: A trusted financial professional is your number one option when it comes to seeking help.
1. Calculate your income.
Before you start the engine, you have to give it fuel. That's why the first step is to calculate your monthly net income after taxes and deductions so you know how much you bring home. If you have several sources of income, you may need to check your bank accounts and pay stubs or consult your accountant on this step to be sure you start accurately.
2. Track your spending.
Whether you prefer an app on your phone, computer software, or simply a notebook to jot down your expenses, keeping track of your spending is critical. It helps you see where you spend your money rather than where you think you are. You can use this budget worksheet from the Federal Trade Commission to calculate your income and expenses or check out this online budget planner from the Financial Consumer Agency of Canada.
3. Categorize your spending.
Create categories based on necessities (housing, utilities, food, transportation) and luxuries (entertainment, dining out, travel), plus charitable donations. If you have credit card balances, student loans, car payments, or other debt, make "debt reduction" one of your categories.
4. Set up a spending budget.
You can set a realistic budget once you know where you are spending money. Nerdwallet (a BBB Accredited Business) suggests trying the 50/30/20 rule. Allow 50% of your income for your needs, 30% for wants, and use 20% to pay down debt or save.
5. Choose a budgeting system.
Consider your financial goals and personality and select a budgeting system that works best for you. For example, a cash-based system can help curb overspending. A zero-based budget, where you account for every dollar you earn each month, is great for people who love to plan.
6. Pay down debt.
If you have a credit card balance or other debts, include repayment in your budget. Here are two methods:
Use whichever method works best for you. The important thing is to start chipping away at your debt. Also, call your credit card company and ask if they will lower your interest rate. Some lenders will agree to keep you from transferring your debt to another lender with better terms. Shaving even a few percentage points off your rate can save you thousands and help pay down your balances faster. Visit the National Foundation for Credit Counseling for help and advice on getting out of debt.
7. Pay bills on time.
Consider online bill-paying that eliminates writing checks, buying stamps, etc. Automatic payments can be scheduled beforehand and help avoid late fees and penalties for missed payments.
8. Contribute to your retirement.
Ensure you contribute enough to your 401K plan to get the full matching contribution from your employer. If you get a raise at your job, try putting that extra money into your retirement account. You survived on that income for this long so that you may not miss that extra cash, and your retirement account will significantly benefit. The U.S. Department of Labor and the Financial Consumer Agency of Canada offer ways to prepare for retirement.
9. Save for the big things.
Big purchases, such as vacations or holiday gifts for the whole family, can easily blow your budget. Avoid going into debt for these expenditures by saving up ahead of time and only spending what you were able to save. Many banks and credit unions offer savings clubs that might help.
10. Build an emergency fund.
Car repair, home repair, unexpected medical expenses, or job loss can easily throw you off track regarding budgeting. Financial experts suggest setting aside an emergency fund for six months of living expenses. If that seems too ambitious, start smaller. An emergency fund of even $500 can get you out of many financial scrapes.
More information for US consumers
- Get more tips from BBB on credit relief and debt repayment services.
- Read more about budgeting for the holidays.
- Business owner? How to build the best budget for your small business.
More information for Canadian consumers
- Check out Canada's financial basics and financial toolkit.
- Learn more about your banking rights and protections in Canada and your financial toolkit.
- Read about financial wellness in the workplace for Canadians.
