For financial peace of mind, a budget is a must-have tool in your arsenal.
Navigating your finances without one is sort of like navigating an unknown city without a map, says Randi Shober, senior counselor with Tabor in Lancaster.
“If you are planning to travel by car from Lancaster to Los Angeles, Calif., chances are you have looked at a roadmap or consulted with a navigation system, to decide how you are going to get there,” she says. “If we just decided to drive west, we may end up in California, but you may not hit your intended destination.
Budgeting is the same principle. Once you know your intended goal, design a plan to get you there.”
Shober says budgets help consumers stay on track with spending while also working toward savings goals.
“A common phrase used by consumers is, ‘I have no idea where my money went,’” she says. “The importance of budgeting or managing your money is to help with two things. First, to account for where the money is spent. Secondly, to create a plan designed to help you meet your financial goals.”
Getting started with a budget may seem like a daunting task, especially if you’ve never created a budget before, but it doesn’t have to be overwhelming.
“Initially, you want to determine what your goal is,” Shober says. “Is it to start a saving plan? Pay down debt? Whatever the end result, think about where you want to be.”
Next, she advises, begin designing a plan, but keep an open mind because you may not get it right on your first try.
“(A budget) is a living, breathing document that will change,” she says.
A good place to start is comparing your income to your expenses.
“Begin with your fixed expenses such as housing, utilities, insurances and debt,” she explains. “Then, try adding in your flexible expenses, things you know you spend money on each month such as groceries, transportation, prescriptions, items like that. Eventually, you want to expand to the periodic expenses. These are items that don’t happen every month, but are going to come up eventually such as home/car maintenance, gifts, clothing etc.”
Most importantly, she says, add in your savings goal.
“The hope is that your income is exceeding your expenses,” she says. “If not, then it’s time to prioritize. What is a need vs. a want? Can spending be reduced in any area or can income be increased? If you have balanced your income and expenses, you have succeeded in plotting your course.”
Since budgets can fluctuate, Shober says a helpful tip is to round up your expenses. It’s better to overestimate your spending than underestimate it.
Staying on track with your budget can be as simple as writing down your expenses in a notebook or using an app or spreadsheet program.
“You want to find a system that fits your personality,” Shober says. “If you are very detailed, you may want to track every expense. If you are a visual person, maybe using a tracking system that uses graphs or a cash-based system is better for you.”
“The key to tracking is convenience,” Shober explains. “If you always carry your planner or pocket calendar, it may be very convenient for you to write down an expense or date a bill is due. If you spend lots of time on a computer, you may find it easy and convenient to link accounts or download your bank statements.”
After you’ve developed a system that works for you, be sure to evaluate your finances regularly.
“Once you track it, you need to compare it to your plan,” Shober says. “Are you staying within your budget or not?”
And, she emphasizes, remember to reevaluate your budget over time.
“As you track your course, your plan will tell you when you have missed a category or need to re-evaluate,” she says. “But as goals change, as income changes, and as life continue to progress forward, you will need to update your plan.”
If you’re struggling to get started with a budget, or are having trouble sticking to your budget, Shober recommends financial counseling, which is offered through Tabor in both individual assistance and free financial workshops.
With the right support, making—and sticking to—a budget can be accomplished, she says, noting, “We are here to assist in helping individuals and families meet their financial goals.”