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4/10/2018

5 Steps for Creating a Budget

Whether you're saving up for a major purchase or just looking to get a better handle on your daily finances, budgeting is the way to start achieving your financial goals. It may seem intimidating, but creating a budget that works for your expenses and lifestyle preferences is straightforward once you have a few guidelines to follow. Having a budget in place will help you keep track of how much you're spending each month and can help prevent you from living beyond your means (and ultimately, stressing out).

Start with the following five steps and you'll be on your way to practicing better money habits in no time.

  1. Identify your net income – You can't effectively plan out how much you should be saving and spending each month without first noting your after-tax income. This should include what you take home from your primary job along with any earnings from a side job or hobbies. Make sure to factor in automatic deductions for any 401(k) savings, health or life insurance, and tax or business expenses so that you're getting an honest picture of the cash you take away from your earnings.
  2. Examine and track your spending – Next, you'll need to take a close look at how you're spending that money that you're taking home. Whether you track your expenses with old fashioned pen and paper, a spreadsheet, or through a budgeting application, take note of the areas where you're spending and how much you're spending in each of those areas. Track your budget this way for a month or more and then analyze your typical behavior. You may discover you're spending a lot on things that aren't that meaningful to you, like eating out or streaming services. With this understanding, you can start to plan out where you can cut down or reallocate your spending.
  3. List your short- and long-term goals – Before you set up your new budget, take some time to list out the goals that you hope to accomplish, both short- and long-term. These goals may be milestones you hope to reach within the next year or as far away as 20 years from now. Don't worry – your goals are flexible and can be updated as time goes on, but it's always good to have a starting place for your financial priorities. Knowing your goals will help you decide on your methods of saving and provide support for your spending choices. For example, if you know you want to purchase a car in two years, you may want to open a CIT Bank High yield savingsmoney market or CD to grow your savings for that length of time by taking advantage of high interest rates.
  4. Create and implement a budget – Use your spending analysis and your list of goals to develop a budget. It's helpful to establish your wants versus your needs – for example, utilities for your apartment are a need, but your cell phone plan might be a want that you can minimize by cutting down on your data plan or considering an older model phone to decrease your monthly bill. Weigh the benefits of decreasing certain services or habits to create savings that will help you meet the goals you've identified. Consider employing a savings calculator like those provided by CIT Bank to tackle the specific financials. Once you've made some decisions, outline your budget guidelines and prepare to track yourself moving forward.
  5. Review and adjust as needed – A budget is not a "set it and forget it" item. Regularly check in with your budget to see how you're tracking toward to your goals. This is also beneficial as your priorities and financial circumstances change, for example if you get a raise at work or decide to start a family. Continually revisiting your budget and making changes as needed is a smart way to stay on top of your finances and ensure you're continually moving toward achieving the life goals you've set.

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