Balancing Your Budget
The current fragility of our economy makes living within your means increasingly important. A well established budget can help you allocate current monetary resources while preparing for future financial needs. In addition to cutting back on impulse shopping and searching for bargains, sticking to a comprehensive budget can help you stretch each paycheck and even leave you with extra cash at month’s end.
Building a balanced budget requires more than simply cutting back on groceries or dining out less often. It’s a process that begins with taking a realistic view of your expenses, says Dale Teel, Senior Vice President and Regional Sales Manager for First Midwest Bank. According to Teel, many people fail to include basic needs and wants into their budgets because they’re convinced they’ll be able to live without them. And even well-designed budgets can fail if people neglect to implement them.
To build and implement a realistic budget, Teel recommends that families track the money they spend over a few weeks. “You need to know what you’re spending money on before you start a budget,” Teel says. “Save receipts, and utilize your debit card and online banking to track what you are doing – what’s going in and out of your bank account.”
You also might consider using a money tracker, such as the Daily Spending Diary that’s included in First Midwest Bank’s Personal Budget Kit. Through this diary, you can discover and categorize all the little items that would normally slip through the cracks of a typical budget worksheet.
A debit card is another great alternative to help track your spending. Use your debit card for everyday purchases whether you are shopping, dining out or traveling. And then use it again to pay your monthly and periodic expenses, such as utilities, child care and loan payments. Because the money comes directly from your checking account, all of your transactions appear in online banking and on your monthly statement, which can help you figure out where your cash is going.
Planning Your Paycheck
Once you’ve tracked your expenses and get a sense of where each paycheck goes, you can begin creating a budget by allocating a set amount toward regular expenses, such as mortgage payments, car payments, utilities and even your weekly lunch allowance.
You also should set aside money each month to cover any small, unexpected expenses, such as doctor’s appointments or a flat tire. To cover larger unexpected expenses, such as household repairs or other emergencies, it’s important to have sufficient savings set aside. Rosemary Wieliczko, Senior Vice President and Senior Retail Channel Manager for First Midwest Bank, suggests having three to six months worth of expenses in savings at all times.
In addition, you should put 3% to 5% of your monthly income into savings, preferably set aside incrementally throughout the month. Most online banking accounts make it easy to set up automatic payments to your savings account. If your employer provides a direct deposit option, take advantage of it and have a portion of your income go straight into your savings account.
However, when setting up automated savings, Wieliczko cautions about being too aggressive, because this will leave you with no discretionary spending money. “Start with $25 a month to make sticking to a savings account a little bit easier,” she says. “Then, as you are able to, increase your monthly contributions to accelerate your savings.”
Refining Along the Way
Chances are, it will take more than one pass to get your budget fine-tuned to accommodate your needs and wants. Refining a budget helps you set realistic expectations and boundaries. “Remember,” Wieliczko says, “you only have two choices for your money: spend it or save it.”
Budgeting as a Family
To successfully maintain your newly developed budget, it must be a team effort and everybody must understand that each family member is a crucial player. Here are nine helpful hints to keep your family on track and your budget strong.
1. Always remember to pay yourself first.
2. Pay off debts as fast as possible to avoid interest expenses.
3. Re-evaluate family expenses. Do you need cable? What about high-speed Internet?
4. Cut back on dining out. Make dinner preparation a family affair.
5. Don’t stray from the shopping list.
6. For entertainment, check out free activities in your area, such as community theatre groups or performances by the municipal band.
7. Use the public library rather than buying books or magazines.
8. Do your own home repairs.
9. Avoid impulse shopping. If a family member sees something they like at the store, be sure to wait a few days before deciding to buy it.