Set goals — and write them down
You're probably not creating a budget just because it's so much fun to pour over financial documents. You likely have a goal in mind. Whether it's buying a car, a house, that cruise to the Bahamas, or saving for your child's education, there's something you want to achieve.
Goal setting is important because it lets you look forward to a tangible reward. Don't be afraid to dream big with your goals, and once you've identified them, write them down. Researchers have found that if you write a goal down in concrete terms, you're more likely to achieve it. For a little extra motivation, keep your written goals in a place where they'll be visible in your home. If you're seeing and thinking about your goals more often, you're more likely to stay on track.
Collect your information
To develop a meaningful budget, you'll need to bring all your financial information to the table. This includes all bank statements, credit card bills, utility bills, loan information, child support agreements, grocery bills, etc. If it has anything to do with the way money comes in and goes out of your household, make sure you have it in front of you. If you don't have all the information, the budget won't reflect your true financial situation, making it useless.
Calculate your income
To start the budgeting process, you first must know how much you're earning each month. Add up your total income from your primary jobs and any side gigs you may have. Once you know how much money you're bringing in each month, you can then start to figure out how to spend it.
You'll also want to note how much you're earning from any investments you may have, but as these are typically assets designed for long-term savings and wealth building, you won't factor them into your monthly family budget.
Determine your fixed expenses
There are going to be areas of your budget where you simply don't have the option to cut back on your spending. These are called fixed expenses and include things like your mortgage payment, loan payments, child care, car insurance, property taxes, etc. Some of these things will have a set amount each month (like car insurance), while others can vary in total amount but still have to be paid every month (like utilities and groceries).
There may be no getting around these costs, but they're still important because they form the basis for your budget planning. Next, you'll look at your discretionary spending, which is where you can really start to save.
Identify discretionary spending
There's a big difference between things you want, and things you truly need. When it comes to budgeting, this is called discretionary spending. It includes things like going out to eat, movie tickets, video games, travel, and gifts. These costs are often a lot higher than people realize, which is why this is the primary area where you can cut spending and save money toward your financial goals.
Add up all of your discretionary spending items and look for specific areas where you can cut back. You don't have to stop spending on these things altogether. Instead, set a specific amount you want to spend each month on these activities. Once you've hit that limit, you're done with those activities for the month. This method ensures your spending stays on track while still allowing you to enjoy all the things you love in life.
Make a plan to reach your goal
Once you've figured out how much you can realistically save based on your income, fixed expenses and discretionary spending, take another look at the goals you wrote down earlier. Try to figure out how much you'll be able to put away each month and develop a plan for how to reach those goals. Even if you can only save $100 each month, that's $1,200 a year toward your financial future.
Keep your plan manageable by setting a series of small goals and deadlines, so you have benchmarks to hit as you work toward your larger goal. You'll feel accomplished as you hit each target.
Track your spending
As you go forward with your new family budget, it's important to have a system in place to track your spending. Otherwise, how will you know if you're on track to hit your goals? There are many money management apps and digital banking systems that can help track your spending for you. You can also create a document where you manually add up everything you spend as you go along. Whatever system you use, just make sure it's capturing everything you're spending. If a credit card or checkbook isn't being accounted for, your budget won't be very useful.
The Credit Union of Texas can help with all your budgeting and money management needs. Just stop by one of our locations or call 972-705-4845 to take the first step toward achieving your financial goals.