Creating a budget, plus 3 tips to stick with it

Key takeaways

• Understanding where your money is going can help you better manage your spending. 
• Simple habits such as reminders and consistent tracking can help you stick to your budget.
• Regular budgeting is a good habit that will help you manage your finances.

Are you stressed about money? After the holidays, it can be tough to look at your bank account. Perhaps those gifts and festivities racked up more than you expected. Plus, with multiple bills, insurance payments and regular everyday needs, it’s easy to start wondering where all your money went.

If this sounds familiar, it may be time for you to start a budget. Managing your money shouldn’t be a dreaded task, and the beginning of a new year is a great time to establish good habits and set some goals. With these simple strategies, you’ll be a budgeting pro.

1. Figure out where your money goes

Before you create your budget, you need to evaluate the current flow of your money. To do this, examine two things:

• First, what are your fixed living expenses? These are the payments you need to make every month. They can include your mortgage or rent, utilities, phone bills, car payments, insurance bills and loan payments. You may have some smaller fixed expenses as well such as gym memberships and  streaming accounts. Be sure you take all those into account.
• Second, start to understand your everyday expenses. Group your daily spending into categories. Look at your last three bank statements – this is easy to do with online banking at MidWestOne. Figure out your average spending on items such as groceries, gas, entertainment, and more. A spreadsheet is a great way to track expenses, group them and then easily add up their sums.

2. Keep track of your income

Now that you know what is going out of your bank account, it’s time to figure out how much money is coming in. Look at your paystubs. Also consider any bonuses, interest income, tax refunds, freelance payments and tips. Based on those items, figure out how much money, on average, you make a month.

3. Compare the two

This is where the rubber hits the road: Look at your average monthly spending and average monthly income. How do they compare? Do you have more income than spending? Or is it the other way around? To save, your income should be greater than your expenses. The more you lower your outgoing expenses, the more you can save.

4. Set the monthly budget

After your comparison, create a new spreadsheet with each category included. You’ll have three columns: categories/expenses, anticipated costs and actual costs. Let’s break these down:

• The first column should list each expense category (such as car payment, food, utilities, etc.)
• In the next column, list what you anticipate spending for each category. Base these estimates off the monthly averages you figured in the first step. Make sure these anticipated expenses add up to less than your monthly income. You need to save money.
• The third column should list what you actually spent in each category that month. The goal is to try and avoid exceeding your anticipated expenses.

Congrats! You just made a budget.

Unfortunately, there’s another - very important – component to budgeting. Sticking to it! Here are some tips for sticking to your budget:

1. Reminders are key

Set a time each month to update your “actual spending” column. The beginning of the month can be a great time to do this because you can review the past month’s expenses. Set a reminder in your phone or calendar so you don’t forget. 

2. Track your spending

Keep your receipts to track purchases. Remember both online and paper receipts, so you’re inputting an accurate representation of your spending.

Apps such as Mint.com are also a great tool for tracking your spending habits. By continuously tracking, you can adjust your spending habits as needed.

3. Hold yourself accountable

Make a deal with yourself to continue to manage your money better. This deal could be as simple as not attending to other items until your budget is updated. You also could reward yourself each month you meet your budgeting goals. Perhaps you set aside $10 towards a new splurge item you’ve been wanting as long as you don’t overspend in any category. Figure out what motivates you most, and then use that motivation to keep your budget updated.

MidWestOne bankers can help you get on the right track. Stop in to one of our MidWestOne locations.

MidWestOne Bank does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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