A budget is a financial plan that helps you map out your goals, save money and make your dreams a reality. To create a budget, start by listing your routine, nonnegotiable expenses and subtract that total from your income.
This includes recurring monthly costs like utilities, phone and internet, insurance, debt payments and retirement contributions. Also include variable costs that change from month to month, such as groceries, gas and dining out.
Identify Your Needs
In order to create a budget, you must first identify your expenses. Take a close look at your bank statements, receipts and credit card payments to determine what your costs are.
Include expenses like rent or mortgage payments, utility bills, food costs, transportation costs and any debt payments you have. You can also include items like entertainment expenses (dining out, movies), subscriptions and lifestyle costs, such as branded clothes.
Now that you’ve gathered all of your costs, classify them as needs or wants. It’s essential that you prioritize your needs over wants to ensure that you can pay your bills and avoid debt. This could mean reducing your entertainment costs, eliminating unnecessary subscriptions or cutting back on travel expenses. If you’re struggling to identify your spending, try using the free MyMoney tool in First Bank online or mobile banking.
Determine Your Wants
When you’re budgeting, it’s essential to understand the difference between needs and wants. Needs include expenses that are required for survival, such as housing costs and utilities, while wants are items that provide enjoyment or convenience.
To identify your wants, start by creating a list of every item you buy each month. Next, group them into categories, such as toiletries and insurance. This allows you to see the big picture and determine if you need more than you have or if you want less than you currently have.
It may take some time to separate your needs from your wants, especially if you’re new to financial planning. Having a clear distinction between these categories can help you feel more motivated to stick with your budget and achieve your financial goals. Choosing to delay a wish and save instead of spending money on it can be just as rewarding as satisfying a need. For example, a luxury car might satisfy a need for speed, but a more affordable sedan could fulfill the same purpose and still allow you to enjoy your commute.
Create a Budget
The specifics of a budget depend on your financial situation and goals. However, a general formula is to add up all your take-home income and then list each expense in more detail, including your debt payments, savings and spending goals. Then, track your daily expenses for the week, month, semester or length of time you have chosen to use your budget. Using an app on your smartphone, a budgeting spreadsheet or online template, or simply a pad and pen, document each purchase.
This will help you identify patterns of spending and areas where you can cut costs. It also helps you see if you are spending beyond your means or are not saving enough. If you find that on paper you have money left over but you’re living close to the edge or struggling, it might be time to reassess your goals and make some changes. The more you practice, the easier it will be to create and stick with a budget.
Track Your Spending
Tracking your spending provides valuable information that can help you build a budget and work towards financial goals. Whether you use an app, a spreadsheet or the old fashioned pen and paper, making it a habit to review your spending habits on a regular basis can lead to savings.
Start by reviewing your income and expenses from the last month – this may include looking at bank or credit card statements, receipts, a notebook or Morgan Stanley’s digital solutions such as the Spending and Budgeting tool (available on morganstanleyonline and the morgan stanley mobile app).
Next, look at your variable expenses which can vary from month to month. This can be done by examining your bank or credit card statement, identifying recurring charges, unwanted subscriptions and adjusting your spending habits to reduce costs where possible. Keeping tabs on your money can make you aware of ways to save, lower costs and even help you reach a financial finish line such as saving for a vacation or retirement.