Budgeting is a term you might’ve heard when considering saving money. It allows you to meet your financial goals and prioritize your expenses. In hard financial times, saving money can be difficult to do, but essential for long-term financial wellbeing. Budgeting requires discipline and long-term commitment, and like it or not, budgeting is something you must do your entire life. Together, we can find ways to simplify budgeting and learn where to cut expenses.

What is a budget?

A budget is a financial spending and savings plan that’s used to help people meet their financial goals and/or find financial wellness. Everyone’s budget is different depending on their situation, but the rules of a budget are always to assign portions of your income to a variety of specified expenses and only spend the amount set aside for each expense.

What are some examples of budget categories?

1. Housing
2. Food
3. Transportation
4. Medical
5. Emergencies
6. Savings
7. Dining Out & Entertainment
8. Gifts

How can I properly record my monthly income & expenses?

It’s important to understand that expenses include fixed or constant monthly costs (i.e. rent, loan payments, etc.),variable expenses which frequently change (i.e., grocery costs, utilities, etc.), and period expenses that might not occur every month (i.e., back to school expenses, seasonal recreational activities, or annual vehicle registration).

1. 1. List your fixed monthly expenses.
   2. Calculate periodic expenses, including fixed bills you might pay on a quarterly or annual basis, and variable periodic expenses such as seasonal recreational activity costs.
   3. Create a list of your variable monthly expenses (your expenses that change).
   4. Compare what’s coming in with what’s going out.

Making a budget:

Making a budget requires a hard look into your current spending habits. Start by creating a list of how much money comes in and how it’s spent. This income budget calculator provides a way to create such an expense list. As you enter your information, this calculator will help you consider how to create a budget plan that will work efficiently for you.

One tip to stick to your savings plan is by making it automatic. This is called “paying yourself first”. Don’t put yourself in the position of deciding how much to save with what is left of your paycheck at the end of the month, prioritize savings first. Some employers allow you to split your direct deposit into different accounts. Consider sending 10-20% of your paycheck into a savings account with a competitive annual percentage yield, like AAGCU Regular Savings. You’ll be surprised how easy saving can be when you don’t see the amount saved bulked with the rest of your paycheck.

Decrease your expenses:

Cutting your expenses is generally the easiest way to get some control over an out-of-control budget. You’ll need to take a hard look at your spending and consider the areas where you can cut down. Fixed expenses like loan or rent payments are much harder to change. But variable expenses, like your food or entertainment costs, are easier. This coach can help you find areas that you can trim.

When to splurge and save:

When sticking to a budget, you can come to cross-roads between buying the “nicer” more expensive option or go with the cheaper one to save money. At the end of the day, what you’re really debating is quality vs cost.

There are a few broad assumptions that we make when it comes to why an item could cost more than something similar:

• It’s made with higher quality ingredients or parts.
• Something about it is rare or difficult to obtain or make.
• It’s associated with a well-known or trusted name brand or company.

Often, those three points can lead to these assumed outcomes:

• The item may do whatever it does better.
• You may spend less in the long run on repairs or maintenance.
• The item may last longer.
• The seller or maker may offer a better warranty on the product, be easier to work with, or provide an overall better buying experience.
• The item may have a higher value and hold it better, meaning you would get more for it if you were to sell it again.

We usually make the opposite assumptions about lower priced items (they are made with lower quality materials, they won’t last as long, etc.). However, these assumptions won’t be true in every situation.

Don’t Be Duped

Sometimes sellers rely on these assumptions to get you to spend more than necessary. They know you’ll assume that because an item is priced higher, it must be better or of higher quality, but that’s not always the case. If it’s something that needs to do a specific job, such as a piece of equipment, the less expensive option may do that job just as well or better than the pricier option.

Crowdsource Reviews

If you need help deciding, consider searching the internet. If you’re making a big purchase, or even just browsing online, taking time to read reviews from other users can help you know what works as promised and what doesn’t.

Some things to look for:

• • The possibility and severity of a negative outcome should the item not work as well as another.
  • The price of upkeep, repairs, or replacements.
  • What others have said about the quality of the item.

Budgeting can seem daunting when having to reflect on your spending habits, but these tips can help simplify the process. Some changes may be difficult, but being disciplined now will help set you up for financial well-being down the line!