Expanded Lesson
5 min read
Budgeting Plan: How to Stay on Track and Make Adjustments
-
-
Copied link to Clipboard!
Americans are more in debt than ever. The pandemic may be to blame for part of the increase, but studies have also shown that Americans are less financially literate than they used to be. If you’re struggling with debt, or you just want to live within your means, the first step is to create a budget.
Lesson Notes
- Creating a budgeting plan is an essential step in taking control of your finances and reaching your goals.
- Budgets should be flexible and are not set in stone. Find a budgeting strategy/plan that works for your needs, goals and money personality.
- As you cut back on certain expenses, or start earning more, be sure to allocate the extra money appropriately. Use it to make progress towards your financial goals by paying down debt, creating an emergency fund or investing.
LESSON CONTENTS
Why a budget?
A budget can help you pay down credit card debt, save money and work towards financial goals that are important to you. Regardless of what you’re planning to do with your money, setting a budget will help you stay on track so you can realize your vision.
Creating a budgeting plan
First, make a list of your total income, including your monthly salary and other earnings from odd jobs, freelancing work, alimony or child support. When calculating your total income, don’t forget to use your net income or take-home pay, which subtracts taxes withheld and other deductions, instead of your gross income.
Next, you’ll want to track and categorize your expenses. Where are you spending the most money? For many people, housing is the biggest expense. Things like car payments, daycare, student loan payments and utilities may also account for a large portion of your expenses. Most of these expenses are fixed or don’t usually change drastically from month to month.
In contrast, variable expenses include things like eating out, credit card payments, gas, entertainment, clothes and seasonal expenses.
One popular budgeting strategy is the 50-30-20 rule: 50% of your income for essentials, 30% for fun and hobbies and 20% to repay debts and for savings. These percentages can steer you in the right direction, but they are not set in stone. You can adjust them as needed to fit your situation. Sometimes, being able to stick to a budget is more important than the type of budget plan you use.
Use the following calculator to help track your spending:
Common Mistakes When Setting a Budget
Avoid making these mistakes when putting your budget together:
- If you end up with more money than you expected at the end of the month or receive an unexpected bonus, you may be tempted to go on a spending spree, but it’s best to save that money instead. Avoiding lifestyle creep and living within your means is a financial skill that can help you reach your goals.
- Life changes and so does your financial situation. A good budget should be flexible and grow with you. Don’t stick with a budgeting plan that’s not working for you and remember to reevaluate your budget at least once a year to stay on track.
- Don’t forget to include automatic deductions in your budget, such as annual subscriptions, banking and lending fees, streaming and other digital services.
- When paying down your debts, be sure to pay off more than just the minimum payment or interest accrued. Put money towards the principal amount every month, otherwise you won’t make progress on the loan.
What if your expenses are higher than your income?
Overspending is a common problem that many Americans face. If you’re in this situation, you may need to make some hard choices. You’ll either have to earn some extra money, such as through a side gig or a part-time job, or you’ll have to cut expenses somewhere. This can be an uncomfortable exercise, especially if you’re part of a couple. You and your partner will have different ideas about what to cut back on. Be prepared to compromise.
What can you cut back on?
Expenses like entertainment, streaming services, clothes, hobbies and haircuts can be reduced or, in some cases, exchanged for a less expensive option. You’ll need to budget some money for fun, otherwise it may be harder to stick to the budget. Many people can safely cut back on how often they stop at the drive-through on their way to work or getting fewer clothes — or at least from less expensive brands.
What should you do when you have extra money?
As you cut back on expenses and free up some money, you’ll want to create an emergency fund if you haven’t already. Experts often recommend three to six months of living expenses. Start setting aside money, even if it’s only a little at a time. This money can be used for emergencies or unexpected expenses like repairing your car (bigger repairs, not general maintenance) or paying the deductible for a medical expense.
In addition to saving for an emergency, you should also focus on paying down your debts to avoid paying more interest down the line. Paying more than the minimum or adding a few extra dollars to your payments can help you pay the principal down faster.
Saving for retirement should also be a priority and it’s never too early to start. Consider investing in low-cost ETFs or mutual funds to help diversify investment risk and grow your money.
Final Thoughts
Budgeting may not strike you as fun, but the rewards of sticking to a budgeting plan are significant. You’ll be able to spend money on what’s really important to you and have a sense of financial security, which is priceless.
Related Resources
View All
Expanded Lesson
6 min read
Managing Your Finances During Inflation
Inflation can have a serious effect on your finances. When prices start to rise, consumers lose their purchasing power, which means your money won’t go as far as it used to. You may not be able to control inflation, but you can change the way you manage your finances during these uncertain times. Learn more about the effects of inflation and the impact it can have on your savings and income.
Quick Lesson
4 min read
What To Do With Your Tax Refund
Getting a check in the mail or automatic deposit from the federal government after you submit your tax return is a great opportunity to whip your finances into shape. Don’t let that money burn a hole in your pocket. Use these tips to make the most of your tax refund.
![Different Styles of Budgeting
There’s more than one way to make a budget. Use this guide to learn about the different ways you can manage your expenses as you work toward your financial goals.
[Graphic of male character sitting on coin]](/globalassets/education-center/1_budget-slider.jpg)
Infographic: Different Styles of Budgeting
There’s more than one way to make a budget. Use this guide to learn about the different ways you can manage your expenses as you work toward your financial goals.
Expanded Lesson
6 min read
Working from Home: What to Do with the Money You Save
Many companies have started letting their employees work remotely. You can attend meetings, take calls and answer emails without going to the office every day. Working from home helps to improve worker retention, work-life balance and can even reduce certain expenses. The average person saves around $4,000 a year by working remotely. So, what are some things you can do to put that extra money to work? Use this guide to make smart money management decisions and get the most of every penny you earn while working from home.
Quick Lesson
4 min read
Comparison Shopping: How to Find the Best Deals
As a consumer, you have choices on where to buy the things and services you need, from cars to home goods and everything in between. If you’re trying to save money, you might try comparing prices from more than one store or vendor. Finding the lowest price can help you save money, leaving you with extra cash to invest and pay down debt or work towards other financial goals. Comparison shopping is easier than ever with online tools and shopping. Use this guide to find the best deals online or in-store.
Quick Lesson
3 min read
Is a Free Checking Account Really Free?
You may be intrigued by all the free checking accounts you see advertised. No one likes to pay fees, especially when accessing your own money. Those fees can eat away at your budget. Therefore, free must be good, right? Yes, but free checking is not always completely free. You just need to know what to look for.
Expanded Lesson
5 min read
Kids Checking Accounts: Things to Consider
If your child is responsible enough to manage their own money, you can set up a checking account that comes with its own debit card. Here’s what you need to know about opening a bank account for your child.
Expanded Lesson
6 min read
Money Tips to Save More and Spend Less in the New Year
Around this time every year, countless people spend time pondering and planning goals and resolutions for the upcoming year. Whether your new year’s resolutions are big or small, improving your personal finances can probably help you reach them. A foundational piece to improving your finances is learning how to save more and spend less. Read this article to learn about some of our Community Education Team’s favorite money tips to try in the new year.
Expanded Lesson
6 min read
New Year’s Financial Resolutions
With the New Year rapidly approaching, many take this time to reexamine and reprioritize every aspect of their life, including their finances. The end of the year is a great time to reflect on everything you’re doing right and how you’d like to improve. Many of us make New Year’s resolutions, vowing to change our behavior for the better. If you start meaningful financial habits, you will be one step closer to achieving financial health. If you’re looking to improve your finances, add these New Year’s financial resolutions to your list.
Expanded Lesson
5 min read
Budgeting Plan: How to Stay on Track and Make Adjustments
Americans are more in debt than ever. The pandemic may be to blame for part of the increase, but studies have also shown that Americans are less financially literate than they used to be. If you’re struggling with debt, or you just want to live within your means, the first step is to create a budget.
Expanded Lesson
10 min read
Introduction to Charitable Giving
Philanthropy and charitable giving, once thought to be reserved for the wealthy and the elite, has become a common theme across much of today’s society. Charitable organizations fill a vital niche in our communities. They serve the public and support initiatives that may not be covered by the public or private sector and help create thriving societies and economies. Charitable giving can be both personally and financially rewarding, which is why it’s important to know what your options are so your gift has the biggest impact.
Expanded Lesson
7 min read
How to Set Financial Goals
If you’re looking to make the most of your money, it’s time to set a financial goal. Everyone has dreams of a better tomorrow, and saving money is usually a big part of making your dreams come true. Setting a goal is like setting a budget. You should work towards saving as much money as you can every week/month until you reach your goal, whether it’s buying a new car, saving for retirement, or paying off your student loan debt. Setting a goal for your finances is the best way to turn your money into something of value. Learn how to take control of your money with these personal finance tips.