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How To Start Planning A Budget

How To Start Planning A Budget

A government survey about financial wellbeing conducted by the Consumer Financial Protection Bureau found that “the financial well-being of U.S. adults varies widely, and that a large percentage of people are financially fragile.” But, it also notes that there’s no one factor responsible for how a person feels. “Financial well-being seems to reflect the interaction of many factors, combined with each individual’s specific life goals and priorities,” the CFPB wrote.

No matter whether your own financial goals involve owning a home or achieving financial security, planning a budget can help you get there. Here are some tips for budget planning — and how to build a budget that works for you.

1. Evaluate Spending Habits
As the saying goes, “until you know where you have been, you don’t know where you are going.” This applies to budgeting, too. Knowing how you spend money is something that experts say is a must when it comes to beginning your savings journey. Once you start tracking your spending, you’ll see themes emerge that you can use to create the building blocks of your budget. If you’re ready to hustle up and get your budget going without spending weeks manually tracking your spending, tech website The Verge recommends trusted personal finance apps like Mint and Clarity Money (both available on iOS and Android) that will analyze your bank accounts once you link them with the software. According to The Verge, “Clarity will show you how much you spent on several categories by week, month, or year.”

2. Think About Goals
What do you want to achieve with your finances — a larger savings account, a vacation, a new car or house, or to pay off student loan debt? Think about both short and long-term goals. Financial experts tell U.S. News that this budget planning step is key, not just for understanding how to structure your budget but also for motivating you to actually stick to a plan.

3. Categorize Needs & Wants
Everyone’s financial situation is different. In general, many personal finance experts recommend giving every dollar a job — which means dividing the real money you have each month among different categories. (This is also called “zero-sum” budgeting.) Figure out your total income after taxes. Then think about your monthly obligations — must-pay bills like housing, insurance, car payments, and student loan payments — things that tend to be around the same amount each month. Those might become a category called “Fixed expenses.” Another category might be variable living expenses that tend to fluctuate, like groceries, clothing, and utilities. (Again, this is where having tracked your past spending can come in handy.) Other categories could include entertainment, savings contributions, and debt payments, like credit card bills.

4. Know That One Size Doesn’t Fit All
What works for one person might not work for everyone. How you budget depends on your income and your goals. The “50/20/30” rule could work well for anyone who is new to budgeting because it focuses on a simple concept: 50 percent of your income goes to necessities (which includes minimum credit card payments and your mortgage, if you’re a homeowner), 20 percent to paying down extra on debt and bulking up savings, and 30 percent to discretionary spending. But some might prefer a more specific budgeting template that puts additional emphasis on saving. It’s a personal preference, and ultimately, planning a budget is all up to you!

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