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Master Your Money: Tips for Living on a Budget

Determined to master your money in the new year? Smart idea! Staying on top of your finances begins with living within your means, which means you’ll need to create a budget and stick to it. Luckily for you, Capital Credit Union is here to help. We’ll show you how to craft and stay on top of your budget with our personal budget calculator. 

Total Your Income and Expenses

“Wait—but I’m not good at math!” you may be thinking. That’s okay. We’ll handle all the calculations for you. Just grab a recent pay stub and use our personal budget calculator to plug in your gross income, taxes, and other withholdings. This will help determine your net monthly income.

Let’s say you’re a real estate agent, however, and your income fluctuates from month to month. Simply use your average monthly income over the last 12 months. If you want to play it safe and work with a more conservative estimate, you can also use your lowest monthly income over the past year.

Next, you’re going to input all your monthly expenses. We have them broken down by category to help you out. Remember to budget for less common expenses as well.

For instance, annual payments such as property taxes can be factored into your monthly budget by estimating the total amount and dividing it by 12. You can put these less frequent expenses under the “maintenance, medical, childcare” category in the box labeled “other monthly expenses.”

Once you have everything plugged in, you’ll likely be over budget or under budget. This means you’ll need to make some adjustments to get to a zero-based budget—a budget where all your monthly income is designated to its own use.

Create Your Budget

If you’re under budget, then you have more money to put toward paying down debt or building up your savings each month. On the other hand, if you’re over budget, you’ll need to identify areas where you can cut back.

A good rule of thumb when you’re crafting your budget is to stick to the 50/30/20 rule. This means you would apply 50 percent of your income toward needs (think mortgage/rent, food, transportation, and utilities), 30 percent toward wants, and 20 percent toward savings (or debt, if applicable).

If you’re overspending on needs because you live in a large city with a high cost of living and your rent or mortgage is above average, then you’ll likely have to spend less on wants or come up with a way to reduce your monthly expenses. For instance, could you refinance your home loan for a lower monthly mortgage payment? Or share a car with your spouse instead of having two auto payments?

Following the 50/30/20 rule will give you a good idea of what you can afford when it comes to buying a home or making a new car purchase, as well as how much discretionary income you should be spending on nonessentials such as vacations, entertainment, and dining out.

Track Your Spending

Now that you’ve done all the hard work of creating a budget, you’ll need to stick with it by tracking your spending. There are several budgeting apps that allow you to input your monthly budget and track your spending.

Once you spend money in a certain category, deduct it from that month’s budget. For instance, if you’re budgeting $400 for the grocery bill each month and you’ve spent $120 on a grocery shopping trip, you have $280 remaining.

Try to stay on track with your budget. Let’s say, for example, that your utility bill was a little higher this month than usual. Try to find ways to spend less in other categories to make up for the difference. Clip coupons to save on groceries or have a movie night at home instead of going out.

Knowledge is power. Knowing how much you’ve spent on each category for the month and how much money you have remaining will make it easier to stick with your budget and modify it when necessary.

Live Within Your Means

One of the biggest budget busters is impulse spending. You run into a store to buy just one thing, but something catches your eye and you just have to have it. This type of impulse purchase can wreak havoc on your budget, especially if you’re using plastic to pay for it.

There are a couple of ways to avoid falling into the impulse-spending trap. For starters, avoid buying the item for at least 24 hours. Spend the night thinking it over. Do you really need this? Can you realistically afford it? Waiting 24 hours rather than giving into the urge of the moment will enable you to make a more rational purchase decision.

Another trick is talking to yourself in the third person. For instance, ask yourself: “[Insert name here] do I really need this new pair of shoes/random tech gadget/latest subscription service? Or can I make do with what I have right now?”

There’s nothing wrong with indulging every now and again, especially if you can afford it. But if you’re struggling to live within your means, you’ll have to limit impulse spending and other expenses that aren’t absolutely necessary.

Living within your means is about living intentionally and with discipline. So focus on building your budget and sticking with it before you give yourself the freedom to splurge on nonessential items.

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Ready to take control of your finances and master your money for good? If so, consider becoming a member of Capital Credit Union. We have resources and tools, such as our personal budget calculator, to help you stay on track financially.

So get on top of your finances and set yourself up for financial success in the years to come.

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