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How to Make a Budget

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What’s the secret to saving money? Use less money than you make! Saving money is really quite simple, and yet many people struggle to do it. Instead, we tend to use credit to make purchases and end up paying high interest rates on our debt. Why is it so hard to save? Because in order to achieve any goal, you need a plan. With savings, the plan is called a budget.

When you learn how to make a budget, it’s easier to spend within your means and save more for your future needs. Working with a budget requires paying attention to your spending habits, deciding what you want to spend your money on, and making a commitment to make smart decisions with your money.



Before you can develop a budget, you need to get a handle on your spending habits. Begin by writing a list of your monthly bills, which tend to stay the same: utilities, rent or mortgage, debt (credit cards, loans, etc.), insurance, investments (savings, IRAs, etc.), child care, etc.

Next, you can move onto weekly expenses like food, gas, etc. And finally tackle those costly occasional expenses: car maintenance and repair, home maintenance and repair, clothing, hobbies/entertainment, etc.

Write each expense on a piece of paper or type them into one column of a spreadsheet. Next to each expense, record the estimated monthly amount associated with the expense. For expenses that come up once in a while, this will be tricky, so just do your best (see tip below).

When you’re done, add them all together to get a total monthly expense.

Tip: when calculating the monthly amount for occasional expenses, add the expenses together and divide by 12.


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Figure out how much you make each month by dividing your annual take-home salary by 12. Are you making enough to cover the expenses you’ve identified using the suggestions provided above?



If yes, note how much you will have left over each month if the numbers are correct (and the stars align). This is your “leftover” money, which can be used to determine your savings goal for the year.

For example, if you have an extra $100 per month, you could settle on a savings goal of $1,200 (12 X $100) for the year.

Once you have that number, don’t just nod your head and walk away from the paper. Take one of these actions immediately:

  1. If your employer offers direct deposit, have them deposit a portion of your paycheck directly into your savings account.
  2. If your employer does NOT offer direct deposit, make a commitment to yourself to deposit a specific amount into your savings account every time you deposit your paycheck.



You’ve survived to this point. Check your math. If your math is correct and you are living on the edge, or slightly over the edge, here are some things you can try:

  1. Track your spending for a week. It’s easiest to do this if you pay for everything on a debit or credit card. (ONLY use a credit card if you can pay it off completely at the end of each month!) After a week, look at how you’ve spent your money. Did you spend it only on things you need? Are you buying a lot of little extras (coffee, a sandwich, bottled water) during the day that you could just as easily bring from home at less expense? Are you paying for television you don’t watch or really don’t need to watch? Do you enjoy high-end wine but could probably live with a more reasonably priced alternative? Take a really honest look at your purchases and get rid of those you don’t need to make in the future.
  2. Review your utilities and monthly subscriptions. Maybe you could get a better deal from your phone company, or a better rate with your oil company by pre-buying. Do you need that subscription to Barbeques Weekly that you never read? You may be surprised by how many pennies you can pinch in this area.
  3. If being thriftier isn’t solving the problem, it may be time to ask for a raise, find a second job, get a roommate, or look for a better paying job.

Once you’re bringing in more than you’re spending, you can begin to save (and at that point, you can read the “If you answered yes”…portion of this article!)



If you haven’t already, move your expenses to a spreadsheet and keep track of how much you spend each month in reality. Also, keep track of your savings to see if you are moving steadily toward your goal.

If you find that you can’t stay within the budget, determine whether that’s because you HAVE to spend more or because you’re having a willpower issue. If you really do have to spend more, simply edit your budget, and maybe your savings goal, to reflect reality. If will-power is the issue, consider your priorities. Do you really want to save more? If so, it is within your power to do so.

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About Heidi White

Heidi White is a content writer with eight years of experience in the credit union industry. She is passionate about creating timely and useful content that inspires people to take daily, conscious steps toward more joyful lives. Heidi lives in Barre, Vermont.

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