But you also would like to have a little extra for the finer things in life — a new deck perhaps, or a nice vacation.
The key to having enough for both your needs and wants is to spend your money wisely. A good way to achieve that goal is with a specific plan. That’s where a household budget can help you document how much you take in, how much you pay out, and provide clues as to how you might stretch your dollars a little further.
Tracking your monthly budget is easier than ever using software like Microsoft Excel or Google Sheets, or even apps on your phone. Teachers Credit Union also has a household budgeting calculator that can help you run the numbers.
Before you dive in, here’s an overview of what you’ll be doing and why it should pay off:
Add up your income: You probably have a good idea of your annual salary, but to compute your household budget, you’ll need to know how much you earn monthly. It’s a good idea to use paycheck stubs – either paper or online – for all the wage earners in your family. Be sure to also include regular income from other sources, such as interest or dividends. But make sure you subtract the amount deducted for taxes, Social Security, Medicare and your retirement plan. Your take-home pay is known as your net income.
Compute your expenses. How much do you spend each month? Expenses can be divided into two categories — fixed and variable. Fixed expenses are the things you pay the same amount for every month, such as housing, car loan payments, and your cable bill. Variable expenses change month to month, and can include grocery purchases, electric bills and clothing and entertainment costs. It’s easier than ever to find expense information – your TCU online banking page and eStatements contain a history of payments from your checking account. Individual expenditures are also listed on credit card statements, which you can view on paper or online.
What’s the difference? The next step is to use basic math to figure the difference between your income and your expenses. If your net income exceeds your expenses, that’s great. Then you can work to make the gap bigger. And if your expenses exceed your income? Well, you know you need to look for ways to save.
Set some goals. You’re most likely to follow a budget if you have specific financial goals in mind. They can be short-term, such as eliminating some debt or buying new appliances. Or they can be long-term, such as building up savings to buy a house, fund a child’s college education or build a retirement nest egg. A good way to motivate yourself is to write down your goals where you’ll see them each time you work on your budget.
Crunch the numbers. Now it’s time to really get organized. Divide your expenses into categories. These might include housing, transportation, loan payments, utilities, food, health care and entertainment. Within those categories, identify each month’s fixed and variable expenses. You probably won’t be able to alter your fixed costs very much – after all, you have to pay your mortgage. But looking hard at the variable costs might pay big dividends. Could you save money by dining out less often? By reducing your electric use? By carpooling or taking public transportation? One way to think about it is to decide what you need and what you merely want. Can you live without some wants to have more money to pursue those short- and long-term goals?
Some loose guidelines. A good rule of thumb is that 50% of your budget should go toward fixed expenses, 30% toward variable or flexible spending items, and 20% toward your goals. Make sure you build a smart savings plan into whatever formula you use, especially if you’re setting money aside for the long-term. TCU offers dividend-earning savings accounts, money market accounts, and certificates that will help you make the most of your money.
Keep plugging away. Once you identify ways to save, set monthly goals for each category. But that’s not the end of it. For all your efforts to pay off, you’ll need to keep constant tabs on your spending. Get in the habit of documenting every expenditure, whether you save a receipt, send yourself a text or make a note in a budgeting app. That very act may make you think twice about buying things you don’t really need. And check in with your budgeting program of choice at regular intervals to track your progress. As time goes on, you’ll sharpen your skills and come up with new and better ways to make the most of your money.
Have more questions? We are always happy to help! Contact us online or visit one of our conveniently located branches in Indianapolis, southwest Michigan and beyond.
Disclaimer: This article is for educational purposes only and doesn’t constitute tax, legal or accounting advice. Please consult with an attorney or tax professional for guidance.