Budgeting: Make a Plan!

Mandy WrightPosted by Mandy Wright on January 15, 2020

Devising and maintaining a practical, workable budget is the foundation of your financial well-being. Whether you are on your own or have a partner or family, it is an essential starting point.

If you do have a partner, it’s vital to have ongoing, collaborative conversations about the money that you have and how you plan how to manage that money.

Your budget is a map to being more comfortable financially and for sticking to your saving goals. It might seem like a simple step in your financial education, but you’d be surprised at how many people skip it because they don’t know where to begin. Luckily, we have some tools for you to try.

Even if you have a partner and the two of you pay for expenses separately, it’s essential to have one overall household budget. That big picture is indispensable for having a good sense, based on actual numbers, of where you stand financially, and how you plan to stay on track throughout the year.

Remember, a budget is there to help you, and it’s not written in stone. It’s a flexible entity that needs to evolve with your life. Maybe this is the year you make a career move, resulting in a larger income. Perhaps someone in your family gets sick and the medical bills throw you off your current financial track. Life is constantly changing, and your budget should change accordingly.

How to Form a Budget

For most people today, the best route is to create a spreadsheet or use an app to list all your anticipated monthly expenses. It can be helpful to divide them by how frequently they occur.

Try this budget calculator.  

For the fixed expenses, such as rent or phone, it’s easy to fill in the exact amount you know you’ll have to spend. On the other hand, with the variable expenses, such as groceries, there is no single exact amount. But based on what you know you spend, you should be able to estimate a fairly accurate number for most weeks.

The next step is to compare your income to your expenses. In order to achieve (and maintain) a positive cash flow, you might have to adjust some of the variable expenses—which probably means cutting back or cutting some of them out altogether. Have you and your partner talked about which expenses would be the easiest to forego and which would be the most difficult? Use your answers to these questions to help you make the changes you need to make.

Spread the Wealth—When You Can

You should revisit your budget on a regular basis. Remember, it’s there to help you, and it’s very important to adjust it if your overall household income changes or new expenses arise.

If your budget changes because you get an influx of cash, maybe from a bonus or an inheritance, you might be tempted to use it to cover increased variable expenses, such as eating out, traveling, or buying the newest phone. And certainly, using some of the money that way is fine—it’s good to treat yourself once in a while.

But this is also a great opportunity to pay down debt or to increase what you’re putting away in savings—either in an emergency fund, a retirement plan, or your investment portfolio. And remember, if you have questions about investing, visit a financial advisor to make sure you are making the right decisions.

Mascoma Bank offers a wealth of articles, lessons, and quizzes on financial literacy through a partnership with Banzai Inc, a leading financial educator. Take a look!