We all want to feel in control of our finances, but balancing daily expenses with long-term goals can be tricky. Whether you're saving for a weekend getaway in the Ouachitas or planning for a future in Russellville, Union Bank can help you find the right financial balance. The key just might be setting up, and then sticking to, a budget. In this guide, we’ll show you how to create a budget that gives you both control and the freedom to live the life you want.
What is a budget?
A budget is a powerful tool that can help you take control of your finances by keeping track of your spending habits. It is a financial plan that outlines how you address your expenses, allocate savings, and prioritize financial goals for the future. Worried that a budget means living without the things you love? Remember, a good budget isn’t always about spending less but rather knowing why and where you spend.
Getting started on a budget can be daunting but below are step-by-step instructions with tips and resources so you can make sure you're putting your money to its best use possible.
Why is Budgeting Important?
The importance of a budget goes beyond being organized. It plays a vital part in your financial growth and, in the end, can provide financial freedom, among other significant benefits:
- Provides Clarity: Budgeting identifies without bias where your money is going. By categorizing your expenses, you can see where you might overspend. Dining out, subscriptions, or entertainment can be difficult to keep track of, a budget can help you monitor and adjust to keep spending in check.
- Achieves Money Goals: A budget can help you set long-term goals like being a homeowner, taking a family vacation, or growing your savings account. With clarity over your spending, you make better decisions about when and where you invest your money.
- Reduces Stress and Anxiety: Realizing money is tight after you just made more purchases is anxiety-inducing. A clear budget that gives you a guide can make you prepared for a night out or a big purchase. With a good budget, you can rest easy knowing you're prepared for the expenses that come your way.
Prevents Debt Accumulation: It is easy to live beyond your means. But with a budget, you can spend based on what you earn, helping to prevent credit card debt and helping you navigate financial challenges. By sticking to a budget, you can avoid this pitfall and maintain control over your spending.
How to Create a Budget.
Starting your budget doesn’t have to be daunting. Plenty of popular tools and strategies exist including MyFi 360, our intuitive budgeting app designed to help you set, track, and achieve your financial goals with ease.
Whether leveraging a powerful tool like MyFi 360 or sticking to paper and pencil, here are a few actionable steps you can take to start your budgeting journey:
Step 1: Assess Your Income
The first thing you need to do is figure out how much money you have coming in each month in total. Everything from your 9-to-5 paycheck to your side hustle should be considered. Some sources of income may include salary, investments, freelance work, or side gigs.
If your income changes from month to month, find an average number that seems the most honest for your budgeting purposes. If your income is not consistent, it can undermine the foundation of your budget, so ensure you have taken all factors into account. Divide the total amount of income you receive in a year by 12. This is your average monthly budget.
Be careful not to calculate in money that is unreliable. If you sometimes receive a little extra cash from an odd job but can’t consistently track it, it's best not to include it in your budget. It is better to prepare realistically and have more than expected, than the other way around.
Step 2: Add Up Your Expenses
Secondly, make a list of all your monthly expenses, including your fixed costs like rent, insurance, and car payments. These payments are consistent and often make up the bulk of monthly spending.
Account for variable expenses; these might include groceries, transportation costs, utilities, or entertainment. Your variable expenses can fluctuate. So, try to find an average monthly amount that accounts for the moments costs might rise, like utilities during winter months. These expenses can vary significantly, so it's important to track them carefully to avoid overspending.
Don’t forget about the hard-to-track irregular expenses, like annual subscriptions, holiday shopping, or car maintenance. While these don’t happen every month, they can create big waves in your spending, so plan by setting some extra money aside for the months you know you’ll be spending a little bit more.
Step 3: Categorize Your Expenses
Once you are confident in your list of monthly expenses, start to break them down into categories. Some of the more common categories are below:
- Housing: Rent, mortgage, property taxes, home insurance, utilities.
- Transportation: Gas, car insurance, public transit, car payments, maintenance.
- Food: Groceries, eating out, coffee, and other food-related purchases.
- Debt: Credit card payments, student loans, personal loans.
- Savings: Retirement savings, specific saving goals, emergency fund.
- Entertainment: Subscriptions, hobbies, vacations, movies, events.
Once you have all your categories organized and listed, notice where you spend the most. Note where your money seems to go, so you can set goals for change.
Step 4: Set Realistic Goals
Now that you have your total income, average spending, and list of allocated expenses, it's time to budget!
The most important part of a budget is ensuring your necessary expenses are paid. Once you have allocated your monthly income for secure housing, food, transportation, health, and any other essential payments, consider where the rest goes.
Your discretionary spending may need adjusting. But remember, making realistic goals for where you cut down on spending is important for it to last. If you are saving for a vacation, building that emergency fund, or paying off your student debt, a realistic budget is your best bet.
But what does being realistic mean? If you focus on paying off debt, don’t aim to pay it all in one go. Decide on a small monthly amount that you can consistently commit to each month. If you are saving for vacation, decide the amount you will need to set aside each month to reach your goal within the time frame. Financial goals can help energize your budget, but consistency is what makes them possible in the end.
Step 5: Compare Your Income with Your Expenses
Once you have your income, expenses, and goals consolidated into three numbers that you can track monthly, subtract your total expenses from your income. This will give you an idea of whether you are living within your means or need to adjust meet your financial goals.
- If you are spending less than you earn, congratulations, you’ve made some realistic goals. You can use leftover funds you might have to save or pay off debt based on your biggest financial priority.
- If you find your spending depletes your income each month, it might be time to make some cuts…or tighten the belt. Look for non-essential expenditures and see what you are willing to compromise. Dining out, subscriptions, or impulse purchases may be the culprit.
Step 6: Make a Savings Plan
Having a savings account is an essential part of any budget. Without savings, you’re not building your wealth. Set aside a portion of your income to save each month. Even if it's a small amount, being consistent is key. Given enough time, you will see your savings grow.
Savings aren’t just about the future. Sometimes you’ll need money in a pinch. Set up an emergency fund to cover unexpected expenses, such as medical bills, home maintenance, or car troubles.
A good way to decide how much to put away for an emergency is to save at least three to six months of living expenses. Once you have that emergency fund, you can focus on longer-term goals with the security of knowing you have the money if you need it.
Whether you're building an emergency fund or saving for a specific goal, a savings account can help you stay on track.
Step 7: Adjust As You Go
A lot happens in life, everything from events that are worth celebrating to emergencies that cost money. So, like life, your budget may experience changes and sudden shifts. Sometimes, these changes are good! If you get a raise at work, you may have more room in your budget for saving or spending. However, if you experience unpredictable expenses, you may need to adjust your budget temporarily to accommodate them.
The key to successful budgeting is adaptability and flexibility. Review your budget every month to see if you have made realistic goals.
Budgeting Apps: Get Help Taking Control of Finances with MyFi 360
If these steps still seem intimidating, there are budgeting apps that can support you as you navigate your finances. Union Bank’s MyFi 360 app is a trusted tool built for people right here in West Central Arkansas. With features designed to simplify budgeting and help you track your financial goals; it’s a smart way to manage your money anytime, anywhere.
Here’s why MyFi 360 is an excellent tool for managing your budget:
- Access Your Finances Anytime: MyFi 360 gives you round-the-clock access to your financial picture. The app syncs with your bank accounts, making it easy to see your balances, transactions, and progress toward those long-term goals in real-time.
- Track Expenses and Income: It can also help you stay on top of your finances by automatically categorizing your incoming paychecks and outgoing expenses so you can gain clarity about where your money is going, giving you the power to make informed financial decisions.
- Set and Achieve Goals: With its goal-oriented budgeting tools, you can allocate funds to priorities like an emergency fund or a vacation savings plan, ensuring you stay on track with your realistic financial goals.
- Budgeting Made Simple: MyFi 360 can provide access to all your budgeting information in one place, helping you easily manage your finances. The app simplifies the process by showing you exactly where to adjust your spending and helps you stay on top of your financial health.
Five Quick Tips for Your Budget:
Making your budget is the first step but keeping up with it can be tricky! Keep these tips in mind as you balance your money.
- Be Realistic: Don’t aim too high or too fast. Give yourself room for real life—like a Friday night dinner in Mena or a coffee run in Paris. Small, consistent goals help you stay motivated…so does realizing you have room for a splurge every now and again.
- Keep Track: Make sure to check in on how the budget you set is working out. You can do this with spreadsheets or budgeting apps like MyFi 360 to make the process easier. Whatever you do, keep track of every expense, no matter how small.
- Automate Your Savings: Set up automatic transfers into savings and retirement accounts so your contributions stay consistent. Each allocation makes a difference for your long-term goals.
- Cut Back: Do you need that streaming service? Could you cook a little more at home? Cutting back on small purchases and making compromises can make big differences in your savings account.
- Check-in: Review how your budget is going! If you exceed your spending or get a pay raise, figure out how you can adjust for the next month. Regular check-ins keep your bank account healthy and keep you motivated.
Extra Resources to Help You Budget
In addition to budgeting, consider using Union Bank's other products to help you achieve your financial goals:
- Money Market Account: For higher interest savings, consider a money market account. Put your money aside in a money market account.
- Christmas Club Account: Save year-round for the holiday season with a Christmas Club account.
- Dealing With Debt: Union Bank offers debt consolidation loans that can help simplify your payments and lower interest rates.
Ready to take control of your financial future?
At Union Bank, we help customers across West Central Arkansas and the River Valley make smart financial moves—whether that means building a budget, setting up savings goals, or simply getting a better handle on everyday expenses.
Our free MyFi 360 tool makes budgeting easier, and our team is always here with personal guidance tailored to your needs. From Mena to Ozark to Russellville—and everywhere in between—we’re your neighbors, and we’re ready to help.
Stop by your local branch or give us a call at 479-394-2211. Let’s make a plan together.