Your Budget Doesn't Start With Numbers

Most budgeting advice begins like this “calculate how much you earn and how much you spend…” what if instead you started from a different place, a better place—your passions and interests?

What do you care most about? Spending time with family, travel, cultural experiences? Your budget should reflect that. Your first step is to figure out what you want your budget to give you the freedom to do. It’s how you get to enjoy the things you are most passionate about. Starting with this perspective first and foremost will keep you motivated to stick to your budget!

Write down your answers to these questions:

  1. What three things do I care about most?
  2. Where do I want to be financially in three years?
    1. Debt Free? Have a certain amount in savings? What will your net worth be?

Take an Honest Look at Your Spending

Track every expense for an entire month, keep every receipt! Then break your spending down into different categories (food, gas, debt etc.). You will often find that what you say is most important to you may not be reflected in what you purchase.

Recording your spending can give you an accurate screenshot of what your budget can reasonably be. It may be disheartening to see how frivolous your current spending is, but don’t give up. You may also discover that if you make some simple changes to your lifestyle you can put much more toward your long term and short term financial goals.

ACTION: Pull out the spiral notebook and write down every expense and track every dollar you spend. After you do that, add up your totals for different categories of expenses (i.e. bills, entertainment, food, rent, insurance, debt, etc.).

Tools to Get Started

You have a multitude of tools available to help you track your spending and form your budget. We have a tremendous one to offer here at Spokane Federal called Track Every $ (TED). TED is an online resource that is free for all of our members. Within it you can link all of your financial accounts (including those from other financial institutions) to see the overall “big picture” of your finances. Your spending can be automatically categorized based on your budget and you can keep track of your financial goals, all in one place.

If you prefer a more tangible way to keep track of your budget using an excel spreadsheet or pen and paper works as well. Personal finance is personal for a reason, use what budgeting tool works best for you.

Let’s Make a Budget

Many people wrongly assume that setting a budget is about limiting your lifestyle, but the opposite is true. Creating a budget allows you to be free from the confusion that comes from spending money without a plan. Free from guessing how much you’ve spent on food, guessing what you will have left in your bank account after bills are paid and free to have expectations and plans for your future.

Unfortunately, we live in a time where people lose jobs, have to move, or help out with medical expenses for a family member. These are situations in which having your budget solidified is essential, it frees you from having to depend on credit cards or other debt, with their high interest rates, to bail you out in an emergency.

Break down your budget into categories, rent, utilities, gas, loan payments, entertainment fund etc. Your budget should include any regular monthly expenses you have.

ACTION: Set aside some money, ideally two months’ worth of bills in a separate account that is specifically for emergencies. This money should NOT be accessible when the opportunity for vacations, technology or other luxuries show up.

Spend Every Dollar

The next step is to apply the concept that EVERY DOLLAR GETS SPENT. Now you may be thinking, “spending every dollar is a terrible idea” but what we actually mean is that every dollar of your income needs to go toward something. You can save yourself a tremendous amount of stress if you determine ahead of time where all your money is going. When you set out to put together your budget, determine not only what you will be spending on your monthly bills, but how much money will be put toward each of your goals, your emergency fund, your debt or retirement etc.

ACTION: Look at your total monthly income. Record every monthly expense and designate the money necessary. Look at annual or bi-annual expenses (i.e.: insurance) divide these total annual expenses by 12 and add that number to the monthly budget. Divide the rest between goals, retirement, savings, and spending.

Make it Automatic

Take advantage of automatic payment options. It’s very easy and convenient to have all of your bills automatically debited from your checking account. At Spokane Federal we offer a free bill pay option that can mail checks on your behalf to particular individuals. Your bills are already expensive enough, don’t add to them by missing a payment.

ACTION: Make it automatic. Set up all possible automatic debits and bill pays to keep yourself accountable and on top of your financial responsibilities.

There you have it, now it’s up to you to set your priorities, honestly track your spending and set your monthly budget. If you need help or assistance with this process, call us at 509-328-2900 or come in and see us, we’ll be glad to see you.      

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