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Guide on how to make a budget

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    Creating a budget allows you to keep track of your purchases and save money. Whether you're saving up for a vacation or simply trying to cut back on your spending, a basic budget will help you achieve your goals faster.

    Building a budget

    Creating a budget each month is a common way to track your expenses. Use this step-by-step guide to start your monthly plan.

    Steps to building a budget

    Use our Budget Builder to help you craft a budget that matches your income and your needs:

    1. Build SMART goals: Write a list of what goals you want to accomplish from budgeting. Each goal you supply should be SMART:

    • Specific: Be very specific with the goal you're creating (such as, “I want to start building my savings.”)
    • Measurable: Provide a number so you can see when you meet a given goal (such as, “I want to have $1200 in my savings account.”)
    • Achievable: Goals that you can’t meet will only frustrate you, so be sure to make your goal reachable, given your means (such as, “save $20 from each paycheck.”)
    • Relevant: Your goal should be relevant to you (such as, “I want to build savings to prepare for emergencies.”)
    • Timebound: A goal always needs a timeline, so you can see if you're nearing your goal (such as, “I'll put $200 in my savings by the end of the month.”)

    2. Plan out your budget: With your income and expenses listed out and a SMART goal in hand, see how you can adjust your expenses to realize your goal.

    • Provide your income: Make a note of how much money you earn each month.
    • Make a list of your expenses: Enter the amount of money you typically spend each month, and put your purchases into categories such as groceries, utilities, and child care.
    • Determine essential and non-essential purchases: Using the list you just made, divide up the categories into essential, important, and non-important spending. Essential spending can include monthly rent or mortgage, bills, and other payments that you need to pay every month. Important purchases could be groceries, gas, and a gym membership: payments that are a high priority, but that you may cut back on. Finally, non-important spending includes purchases that aren't as necessary month-to-month, such as going out to eat, magazine subscriptions, and entertainment.

    3. Start saving today: With your budget established, find pockets of income you can direct automatically towards your savings. Consider using an auto-save feature which sets aside a portion of your funds to go from your checking account into your savings account each month. A commitment to savings can help build your emergency fund with every paycheck.

    4. Get credit conscious: Having established SMART financial goals, building a budget you can rely on, and committing to savings every month, you can round out your financial health by learning about credit health. Consider reducing your current debt, all the while keeping your credit payments as a steady part of your monthly budget.

    How to use your budget

    Once you have a budget in place that reflects your expected bills and income, automating any payments that are consistent from month-to-month can help make managing your budget simpler.

    If saving money is your goal, tools that include an auto save feature can help you automate parts of your income towards your savings accounts.

    Once you have gained some savings by lowering some of your non-essential costs, you can also put that money towards reducing debt.

    How budgets can help you reduce debt

    If you're reducing debt across multiple loans or credit cards, consider the avalanche or snowball methods of debt reduction. These debt reduction strategies help you focus your efforts on either the highest APR debt (avalanche method) or the smallest balance debt (snowball method). When you turn a debt into a zero balance, you take the same amount you were paying towards that debt and apply it to the next debt in line.

    Once you move all of your debts to a zero balance, you can begin applying all of your debt repayment budget towards your savings budget and begin growing savings to help you reach some of your long-term goals.

    What kind of budget should you have?

    Budget for everyone

    If you want to develop a basic budget each month, try using a budgeting app to help you keep track of your spending. 

    Budget for students

    Students building out a monthly budget have to consider different factors that add up as expenses, such as tuition, books, housing, and a meal plan.

    Budget for families

    If you're creating a family budget, there are many different expenses for each family member that you have to think about. You may also have goals, such as paying for your children’s education or saving up for your retirement. Use the Budget Builder to either make an overall family budget, or to make a monthly plan for each family member.

    Why should you make a budget?

    You should make a budget if you have a goal to save money each month, have expenses that need to be paid, or want to achieve short-term or long-term financial goals.

    Build your emergency fund

    It’s always good to have extra money saved up in case of an emergency. Having a budget can help you build a safety net that you may need in the future. Even saving a small amount of extra money will help you be more prepared. It’s recommended to save 3 to 6 months of living expenses.

    Plan for a vacation

    If you're planning a big trip, sticking to a budget is a great way to save up. Saving money little by little each month will eventually add up, and you may be able to go away on vacation sooner than you planned.

    Prepare for a big purchase

    Having a budget can allow you to save up for bigger expenses such as buying a car, a down payment on a house, or saving up to pay for your children’s education. If you have the money saved up, you might be able to pay for your next big purchase without having to take out a loan or go into credit card debt.

    Reduce your debt

    Moving from a credit lifestyle to a savings lifestyle can help to improve your credit health, including your credit score. 

    Save up for big events

    If there are any upcoming events you're planning for, such as a birthday party, a wedding, or a holiday party, a budget can come in handy. By cutting down on your spending every month, you can have more money available to spend on your next big event.

    What are some ways to save money?

    Cut back on non-essential purchases

    If you want to decrease your spending but are unsure of where to cut costs, the non-essential purchases should be the first to go. This category can include restaurants, sports tickets, and other forms of entertainment.

    Decrease spending and negotiate lower bills

    Another way to help improve your monthly savings is by cutting back on important purchases. For instance, cut back on your groceries expense by buying cheaper brands or cut the cord on your cable bill.

    Or, consider an annual negotiation to lower your monthly bills: a phone call to your internet provider, subscription service, or child care provider can allow you to trim dollars from your monthly expenses that you can dedicate towards savings or reducing your debt.

    Your monthly budget can help you save money

    Building a realistic budget that compares your income with expenses will help you understand how you use your money.

    With that knowledge, you can develop SMART goals for your financial future that commit you to saving money and reducing debt.

    Armed with a plan for savings, you can then try negotiating with some of your creditors to reduce the amount you owe and increase the amount you save every month.

    Beyond the benefits of establishing a safety net or reducing your monthly debt payments, a budget paired with personal financial goals can also help you better manage your credit score. Higher credit scores can give you more opportunities for financing your biggest goals, where budgeting can help you understand which opportunities can fit within your budget.

    Building a budget today can help you work towards your vision for tomorrow, so commit to a regular check of your income and expenses, work on lowering expenses and dedicating monthly income towards savings or reducing debt, and build SMART goals for your future so you can develop a savings plan for success.

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