How to Build a Budget

The word “budgeting” may sound a bit ominous if you’ve just been winging it with finances. The rewards are significant, though, and it’s really not all that difficult. Here’s how to build and stick with a budget without cramping your style.

Budget basics

The first step in creating a budget is to figure out exactly where you stand in terms of cash flow. Add up your net income from all sources each month and subtract your current monthly expenses to see what you’ve got to work with. You can then begin to earmark specific amounts for saving toward goals such as homeownership, debt reduction, education and travel as well as covering expenses. As goals and expenses change, be prepared to make ongoing adjustments to your budget. To make it easier to track spending, it may be helpful to use your debit card instead of cash.

Make budgeting automatic

No one wants to deal with a budget that requires constant effort. Mobile apps, like the Cash Track personal financial management tool offered by the Bank of New Glarus, can take a lot of the drudgery out of budgeting by giving you the ability to track your income and spending, set up cash-flow calendars and create and track financial goals.

One of the best budgeting habits you can adopt is to pay yourself first by depositing something to savings before dealing with any bills. Even small amounts deposited regularly add up over time with compound interest. To make sure nothing derails your intentions, it’s helpful to set up an automatic savings plan that transfers an amount you choose from checking to savings every month. Rather than use your everyday savings account, you may want to open a separate account for this purpose so your money grows completely uninterrupted.

Create cash surplus

What if you can’t even get your budget out of the starting gate because you have no cash to spare each month, or, worse yet, you’re in the red? Don’t give up yet; you’ve still got options to free up hidden cash.

To cut back spending without feeling deprived:

• Check out free beaches, parks and hiking trails.
• Try consignment shops and yard sales for a bargain-filled shopping adventure.
• Explore neighborhood cafes, schools, houses of worship and libraries for free and low-cost theater, concerts, sporting events and educational programs.
• Invite friends for a potluck dinner or DVD movie night.
• Instead of dealing with a high monthly cable television bill, consider substituting cheaper alternatives like Netflix, Amazon Prime streaming or Hulu.
• Choose generic groceries when quality is good, and purchase nonperishables in bulk.
• Shop around to make sure you’re getting the lowest prices on insurance, cell phone plans and other regular services.

Find fun ways to increase income

The things you already enjoy may actually have the potential to generate extra cash. Consider hiring out your skills and hobbies in your spare time by crafting, baking, performing music, acting or doing home/auto repairs for neighbors. Another approach is to sell household items you no longer need by hosting a yard sale or simply posting them online through sites like eBay or Craigslist.

With a little creativity and commitment, budgeting becomes just a regular part of the daily routine. Over time, improved financial health will put you in a position where you can finally afford more of the finer things in life as well as be able to gracefully handle unexpected expenses.

Roberta Pescow, NerdWallet

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