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The Ins and Outs of Budgeting

Consider your budget your roadmap to financial stability

While it may take some thought to think of different ways to earn money, chances are that you can more easily identify ways to spend it. Movies, clothes, video games, a car—the possibilities are endless. If you're not careful, you could very easily spend beyond your means. That's where budgeting comes into play.

A budget is a plan that helps you track and manage necessary and unnecessary expenses to keep spending within your limits and create opportunities to build your savings. It is important to think about your budget being a weekly and monthly resource, so that you don't allow yourself to stray beyond recovery.

The ability to make choices is one of the fundamental elements of building a budget. Making decisions on how you spend your money may require some thought, but being able to justify your choices will help build confidence about your spending and saving habits.

How to build a budget

A budget is built on a very simple equation:

Your Income - Your Expenses = Monthly Net

The equation becomes a little more complicated when you have to figure out all of the x's and y's that the equation is based upon. But have no fear, we're going to help you with that.

Before you begin building a budget, it's important to keep one fact in mine. To be financially stable, your budget should show your monthly net income to be a positive number. That means your expenses must be less than your income. That's how you know you're living within your means, or capability.

If your expenses=your income, you will be living within your means, but you will lose the ability to save or prepare for the unexpected. It is important to think about savings when you are building your budget, so that you can be better prepared for unplanned or emergency expenses. Having your monthly net show a positive number will also provide peace of mind and the ability to save towards a goal to reward yourself for strong budgeting skills.

Your income

Knowing your income is the first step in the budgeting equation. Your income is money that you receive regularly, such as the money you make at a full-time or part-time job. Be sure to subtract any taxes or other deductions and then record those numbers in the chart below.

Monthly Income

Description

Amount

Take-home pay (salary minus taxes and deductions)

$

Overtime

$

Tips

$

Other

$

Other

$

TOTAL INCOME

$

Your expenses

Understanding all of your expenses is a key piece to the budgeting puzzle. It's very important you account for all of your expenses no matter how small or insignificant, to make sure your budget is accurate. Those morning coffees or trips to vending machines do add up! If you have annual expenses, divide them by 12 to obtain a monthly cost. If the cost of something fluctuates from month to month, such as your cell phone bill, try your best to determine a monthly average.

While some of the expenses below may not apply to you right now, it's smart ot keep them in mind as they may impact your budget in the near or not-too-far-off future.

Now, let's record them in the chart below:

Monthly Expenses

Description

Amount

Housing & Utilities

 

Rent, mortgage or room and board

$

Electric

$

Water

$

Gas

$

Cable TV/Satellite TV

$

Internet

$

Cell Phone Service

$

Renter's Insurance or Home Insurance

$

Property Taxes

$

Sewer

$

Garbage Collection

$

Total Housing & Utilities

$

Food

 

Groceries

$

Dining out or Ordering In

$

Other

$

Other

$

Total Food

$

Education

 

Tuition

$

Text Books or Literature

$

Supplies (Notebooks, pens, etc.)

$

Fees

$

Campus Parking Permits

$

Other

$

Total Education

$

Health & Beauty

 

Life Insurance

$

Health Insurance

$

Doctor / Dentist Visits

$

Prescriptions

$

Toiletries

$

Clothing

$

Cosmetics

$

Gym Membership

$

Haircuts

$

Laundry or Dry Cleaners

$

Nail Salon

$

Tanning

$

Total Health & Beauty

$

Transportation

 

Car Payment

$

Car Insurance

$

Parking

$

Bus/ Subway / Train Tickets

$

Tolls

$

Gasoline

$

Maintenance / Repairs

$

Other

$

Transportation Total

$

Miscellaneous

 

Gifts

$

Charitable Donations

$

Pet Care Supplies

$

Membership Fees

$

Other

$

Miscellaneous Total

$

Savings & Investing

 

Savings Account

$

Investments

$

Other

$

Savings & Investing Total

$

TOTAL EXPENSES

$

Your Monthly Net

Description

Amount

Total Income

$

Total Expenses

$

Monthly Net (income - expenses = monthly net)

$

Analyzing your budget results

So, how did you do? By completing the graphs above, you should be able to see how you are spending your money. If your total monthly net is a negative number, you will need to find ways to cut your expenses before you incur too much debt. You may also want to find ways to increase your income to help pay for expenses that are necessary and non-negotiable.

If you need to reduce your expenses, try not to eliminate putting money in savings. Spending less on unnecessary items is something that we all can adjust to, but eliminating your savings strategy could jeopardize your financial stability in the near and distant futures.

When trying to find ways to reduce your expenses, start by determining which expenses are necessary, and which are unnecessary. Unnecessary expenses may be easier to reduce.

  • Necessary Expenses—These expenses are items you can't live without, such as food and shelter.
  • Unnecessary Expenses—These expenses may be more "wants" than "needs." For instance, do you need to buy a latte on the way to class every morning? Go to the movies each weekend? Order pizza every Friday?

If you still need to cut back on your expenses, start looking for ways to save on your necessary expenses. Here are some examples to get you started:

  • Rent—Your apartment may have all of the latest and greatest amenities and be in a great location, but is there anything that you could live without? Could you manage living somewhere that has less amenities and therefore lower monthly rent?
  • Transportation—If you need to buy a car, can you manage with a used vehicle rather than one that's brand new? Can you save on gas by carpooling with a friend?
  • Clothes—While clothes are a necessary expense, you may not need to buy from designers or big brands, or just not as often. Truly think about the "need" versus the "want."

If you need help balancing your budget, don't be afraid to ask for help. Talk to your local NBT Banker, or a local financial adviser for tips and strategies to put you on the path to financial stability.

Remember, balancing your budget takes practice and discipline. The important thing is to stay confident as you manage your budget. You can accomplish anything you put your mind to. Monitor your budget regularly and adjust your plan as needed to fit changes in your daily life. If you practice strong budgeting skills now, you'll put yourself on the right track for financial success!

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