Building a Better Budget
Building A Better Budget
By: Nicole Panzovski, Head of Education and Outreach @ Grow Credit
Finding ways to improve your personal finance management!
There are multiple ways to approach budget development, but let’s start at the beginning. Why even use a budget?
The reason is simple. We don’t know what we don’t know. The problem with spending and no active management of resources is that spending can quickly spiral out of control. Sometimes this spiraling doesn’t even feel like spiraling.
$5 latte
$3 knick-knack at Target®
$10 working lunch
Suddenly, our monthly bill notification pops up and our spending is much higher than we feel it should be. It’s a common truth that budgets help this.
Step 1: Know what you spend
The easiest place to start is to just begin tracking your spending for the next month. Give yourself the freedom to spend like you normally do, but track where you spend it and what mood you were in at the time. The easiest way to log your current state budget is in Excel or through a banking app.
Then, review where you spent your money and identify needs vs. wants.
Step 2: Needs vs. Wants
Needs are the necessities that you pay for to exist in this world. This includes rent, groceries, electricity, phone bill, and even, your Netflix subscription (yes, this is a necessity in today’s world).
Wants are the items and services purchased because they are “nice to have”. The daily coffee, the eating out, that really nice pair of shoes.
Breakdown your current state budget into needs and wants and begin crossing off where you can reduce your spending.
Step 3: Budget to 0
The last step to build a better budget is to create a new budget by budgeting to 0. Budgeting to 0 is the act of listing out your income, needs, wants, and planning your future savings until the remainder of your income is $0. Take this example below:
Monthly Income: $3,000
Needs:
Rent -$900
Groceries -$250
Gas -$100
Utilities -$50
Phone -$80
Subscriptions -$20
Insurance -$300
Wants:
Eating Out -$50
Coffee -$20
Shopping -$100
Savings:
Emergency Fund -$500
Investments -$630
Remaining: $0
Budgeting to $0 allows for you to plan your needs, wants, and even savings, into your budget.
Once you create a better budget, the key is to stick to the budget the best you can and adjust your budget every 3 months. Adhering to a reasonable budget will not only provide opportunities to secure your personal finances, but it is also the foundation for the next steps which will bring you closer to managing your personal finances responsibly.