Budgeting · October 08, 2020

Here's How Learning to Budget Makes It Easy to Master Your Finances

Knowledge is power, and this adage applies to meeting your financial goals just as much as to other areas of life. If you know what you're spending your hard-earned cash on, you can start making the right changes.


This is why learning to budget your money can be so empowering. A budget shows you how much you're spending and where it's going, giving you the tools you need to prioritize what's important to you. By managing your finances, you can have the peace of mind that you're saving in a way that'll help you achieve the things you really want.

Total up your income

The first step in making a budget is totaling up your monthly income. This is as easy as adding up the post-tax amount that you and any other earners in your household bring home in your paychecks each month.

Your income may fluctuate for a number of reasons—for example, if you're self-employed. If that's the case, it's OK to be conservative. Just determine your average monthly income over the last six months. You may even choose to reduce that figure by 10% to be extra careful.

Identify your expenses

Now that you know how much you earn each month, it's time to find out where it's all going. Review your checking account and credit card statements from the past month, and list out your expenses in a spreadsheet. From there, you can sort your expenses into columns based on two main categories: needs and wants.

Needs

As the name suggests, these are expenses you can't live without. They include:

  • Housing
  • Utilities
  • Transportation
  • Health care
  • Groceries
  • Basic clothing and personal care
  • Payments toward your debts, including student loans and credit cards

Wants

These are items that nice to have but not essential. In this column, place items like:

  • Entertainment
  • Eating at restaurants
  • Hobbies and recreational activities

Add up your essential and discretionary expenses, and compare them to your income. Are you spending more than you earn? If your answer is yes, it's time to find ways to cut back.

To make this process easier, you can connect your checking, credit cards, loans and other accounts to the Manage My Money ℠  feature within First Citizens Digital Banking. It will track your spending and categorize it for you.

Tweak your budget

If you're overspending, reducing your expenses can give you more money to put toward your financial goals.

Start by cutting back on the wants. If it's truly a nice-to-have, ask yourself what value it truly brings. You may discover a lot of these wants are actually quite important—your gym membership, for example, or maybe a hobby that brings you a lot of joy. Instead of slashing these higher-priority wants, find some areas where you could cut down on spending without feeling the pinch too much. Perhaps you could take leftovers to work instead of buying lunch every day, for example.

It's also worth looking at your essentials. You can't cut these out completely, but there may be ways you can save money.

  • Consider carpooling to work to cut down on gas.
  • See if you may be able to transfer high-interest credit card debt to a card with lower interest.
  • Make a grocery list to help you resist impulse buys when shopping, or pay with cash instead of a credit or debit card to encourage you to think twice before adding an item to your cart.
  • Check if refinancing your mortgage could help consolidate your outstanding debt while keeping your payments the same or lowering them, which may free up some additional monthly income to work into your budget.

Start saving

With your expenses sorted, it's time to look at your savings. Start by setting aside at least three months’ worth of living expenses, so you'll have a financial cushion should the unexpected happen.

You might also think about your savings goals when deciding how to budget your money. Perhaps you'd like to take a trip next summer, or save for your kids' college. Whatever your goals, the key is to be consistent. Set up a savings account separate from your checking, and try treating the money you deposit there as if it doesn't exist or isn't a part of your income.

Circumstances and priorities change, and your budget might need to change with them periodically. Be sure to look over your budget every so often to make sure it's in step with your needs and goals. This way, you may have a better chance of sticking with it for the long haul.

Insights

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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.