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How to Create A Simple Budget

Empower yourself by knowing exactly how you use your money.

A good budget provides guidelines for better living

Put it in writing to stay committed to the cause:

Building a budget can be a great way to help reduce financial stress and plan for the future. According to a recent Gallup poll, only 32% of Americans had a monthly budget to track income and expenditures and only 30% had a long-term savings plan. If you haven’t created a budget before or need to adjust your budget due to recent changes in your life, let Coastal Credit Union walk you through the basics of how to make a budget, and why you need one.

The State of Americans’ Financial Wellness

Many people in the United States aren’t on solid financial footing, which can cause worry and discomfort. According to a PWC survey, financial stress is at its highest in years, and Millennials are feeling it more than others. A 2015 Federal Reserve report surveyed Americans to check the pulse of our nation’s financial wellness and revealed some alarming statistics:

  • 24% of those surveyed said their household experienced a financial hardship within the last year leading up to this survey, most from health-related expenses.
  • 47% of respondents said they wouldn’t be able to cover an emergency expense of $400, or would need to sell something or borrow money to pay for it.
  • 22% of respondents reported that they spent more than they made within the last year.
  • 37% of those surveyed said they hadn't saved any money in the last year.

Calculate Your Net Income and Expenses

The first step toward creating a simple budget is to figure out how much money is coming into your household, and how much money is going out. Your gross income is the amount of money that you earn before taxes and other deductions, such as health insurance, are taken out of your paycheck. What you’re left with is your net income, or take-home pay.

Your expenses will include electricity, phone plan, mortgage or rent, food, gas, vehicle payment and other things you pay for that drain your bank account. It’s a good idea to break these regular expenses into fixed and variable expenses to help you begin to plan a budget. Fixed expenses are the bills that tend to be around the same amount each month – like your housing or daycare – while variable expenses change each month.

The first goal of creating a budget plan is to make sure you aren’t spending more than you’re bringing in each month, and that you have enough left over to save for the future, and have a little fun.

Put Your Budget in Writing

A spreadsheet will help you track your budget accurately. Most spreadsheet programs come with built-in templates that can help give you a head start by having the basics outlined and formulas calculated. There are also apps and computer programs that help you create a budget plan. Whatever you decide, you’ll want to have your budget in writing or available online so that you have something to stick to.

Next, you’ll want to categorize all of your fixed and variable expenses. Some categories to start with include housing, clothing, entertainment, food, and vehicle expenses. This will help you to see how much you’re spending in each category, and help you see if you are overspending in a certain area.

Did you know that Excel even offers a Family Budget Planner template? They have done this work for you – breaking up the expenses into these common categories:

  • Housing: all your bills for mortgage/rent, gas or oil, electricity, water/sewer, cable, maintenance, etc.
  • Transportation: car payments, bus/taxi fare, insurance, fuel, maintenance
  • Loans: personal, student loans, credit cards
  • Insurance: home, health, life, etc.
  • Entertainment: going out, games, music, etc.
  • Food: groceries, restaurants
  • Children: medical, clothing, tuition, lunch money, child care, toys, school supplies, etc.
  • Personal care: medical, clothes, dry cleaning, gym membership, etc.
  • Taxes: federal, local, state
  • Legal: alimony, lawyer fees, payments
  • Pets: food, vet/medical, toys, etc.
  • Savings/Investments: retirement, investments, savings, college, etc.
  • Gifts/Donations: charities, church

Set Your Savings Goals

Now you’ll want to think about your short and long-term goals. Do you want to buy a house? Go on vacation? Save up for your children’s education or pay down credit card debt? Outlining your goals and how much you’ll need to get there is a great way to start. For example, if you are saving up for a $3,000 vacation, you’ll need to save $250 each month for the next year.

There are many different theories on how much you should allocate to various categories in your life. Some suggest putting aside 10-15% of your net income toward your priority goals, like investments, savings or paying down debt. For many people that might not be realistic, so the best advice is to save as much as you can so that you can enjoy your life instead of just pay your bills.

Review Your Spending

Now you’ll want to figure out how much you’ve been spending in each category. A good rule of thumb is to allow yourself 50% toward your fixed expenses, 20% toward your goals and 30% of your budget toward variable or flexible spending items. This is called the 50/20/30 guideline.

If you notice that you’re spending way too much on eating out, give yourself a smaller eating out budget each month. And, if you see that you’re spending more than you’re taking in, or living paycheck to paycheck, you’ll want to get creative on how you can earn more money, or cut down on expenses, or a combination of both.

Use Online and Mobile Banking to Automate

Now it’s time to put your budget into action using Coastal Credit Union's Digital Banking services. If you know you need to put aside a certain amount of money each month into your savings account, set up an automatic transfer between your checking and savings accounts. You can also pay bills with ease by scheduling via Online Banking and our Mobile Banking app.

Building a budget doesn’t need to be complicated, but it is essential to helping you reach your short- and long-term financial goals. Let our online tools help you.

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Having this account allowed me to save for college and now I have the opportunity to pay for my education without having to worry about interest.
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