Knowing where we spend is the first step to controlling how much we spend. Creating a budget that tracks both income and spending is a tool we can use to build long-term financial wellness.

Ask yourself:

•   “Am I overspending?”

•   “How much do I spend in a month?”

Unless you’re using a spending plan, you may not know the answers to these questions. A monthly budget, also called a spending plan, will provide answers and the knowledge you need to protect from overspending.

How to make a budget
A budget is easier to create than you may think. First, account for all the money you receive in the course of a month. Include every type of income received. Consider employment, interest and additional sources. This is your monthly income.

Next, take a look at your spending.

Make a list of everything you spend money on each month. Consider your mortgage or rent, utilities, groceries, loans and insurance, then look for the flexible things like entertainment, eating out, clothes or children’s activities.

If it’s not obvious what you’re spending on, try converting your budget from monthly to weekly or even daily. Don’t try to finish your budget in a day, look at it over the course of a month and add expenses as you discover them. If you use a credit card for most of your purchases, you could look at three months and then average expenses.

Put each type of expense on its own line and add them up. This will be useful when deciding what to cut later.

Then subtract expenses from income. Start with the highest priority expenses and keep subtracting until you get to zero or all expenses are covered. This is your monthly cash flow. If there’s not enough income to cover all the expenses, you’re probably living on debt and need to address the situation right away. You’ll need to look for ways to cut spending and generate additional income if you can. Also, consider contacting Financial Wellness for assistance (see below).

On to the spending plan

Now that you know where your money is going, you can decide where to target your reductions. If you spend $200 a month on things you don’t need, that’s $2,400 you could use or invest later. It can make a big difference in your budget and your financial future.

Look at each line item in your monthly expenses. Some things like rent and a car payment are harder to cut, but items like eating out, subscriptions and entertainment are easier to focus on. Decide how much you want to spend on each item monthly and then make weekly spending targets that are easier to track.

If your cash flow is already positive, your task is easier. Now consider putting a portion of your cash flow automatically into a savings or investment account. You may even decide how much you want to save before you target specific spending cuts.

If you carry debt, make plans to pay that off first. Eliminating the interest payments will help you get ahead faster.

Well on your way to Financial Wellness
Whether your cash flow is negative or positive, now you know where your money is going and you can plan for the future.

Whether you want to get out of debt, buy a new car or save more for retirement, creating a budget and spending plan are the first steps.

You’ve also put a financial tool into place you can use for the rest of your life.

For a no-cost personal and confidential consultation on these or other financial topics, or for sample budgets, contact Financial Wellness at 833-FIN-WELL (833-346-9355) or financialwellness@aacreditunion.org 

We referenced the video Financial Capability: Smart Spending from The Navigator when compiling this information. Visit Navigator.AACreditUnion.org for additional resources on budgets, spending plans and other topics.

Tips to Make Spending Stick

• •Talk to your family about efforts to control spending.
• •Be OK with saying no.
• •Set up automatic payments.
• •Pay bills when you get paid, not when they are due.
• •Use cash instead of credit when possible.
• •Set a weekly budget for items like eating out and groceries.
• •Track your spending to keep yourself on target.