Friday, 17 November 2017

No matter where you are in your career – first job, mid-career, or nearing retirement – it's a simple truth that without a budgetary playbook, you're losing the game before you start. Good budgeting skills can make navigating your financial life a lot easier.

After all, no coach goes into a game without a plan, and in the game of life, neither should you. So how do you create a budget? Here are some tips and suggestions.

1. Understand your goals first

You'll be more successful with your budget if you know why you're making one. It's a good idea to take some time to think about these "whys" before you start crunching numbers. 

For example:

  • Do you want a better grasp of your income and expenses so you can avoid "surprises"? 
  • Do you want to save for a child's college education
  • Do you anticipate expensive home renovations in the next few years? 
  • Do you want to pay off debt
  • Do you have a big financial goal in mind, like having a six-month emergency cushion or going on a special family trip? Once you know and understand the "whys," setting up the goals and a game plan should be much easier. 

2. Build budgeting skills by consulting the experts

Smart players know to listen to the experts who are, in this case, financial planners. Financial planners can review your finances and make personalized suggestions for your situation. To illustrate, here is an example of how someone might decide to allocate expenses: 

  • 30 to 35 percent for housing: Rent or mortgage, homeowner's or renter's insurance, taxes, utilities, and maintenance
  • 5 to 10 percent for utilities: Gas, electricity, water, phone and internet service. 
  • 10 to 15 percent for transportation: Car payments, train or bus fares, taxis, parking fees, insurance, and car maintenance.
  •  5 to 10 percent for healthcare. Insurance premiums, copays, and medications. 
  • 5 to 15 percent for food. Groceries, school lunches, and restaurants. 
  • 5 to 10 percent for debt repayment: Credit cards, student loans, car loans, home-equity loans.
  •  5 to 10 percent for savings: Retirement accounts, a six-month emergency cushion, college savings for your children, and any other savings goals
  • 5 to 9 percent for entertainment/recreation: Vacations, travel, movies, plays, club/gym memberships, and concerts.
  •  2 to 7 percent miscellaneous personal: Clothes, toiletries, electronics, and other discretionary items. 

Work with one of our Financial Planners to build your budget!

Make a list of all your monthly expenses. Keeping in mind your budget allocations tally up your spending by category. You can individualize categories to fit your specific needs, such as adding a category for charitable donations or gifts.

Now, figure out what your monthly net income is, that's the total you receive after taxes and all other deductions have been taken from your paycheck.

  • Take a look at your monthly net income: the total you receive after taxes and all other deductions have been taken from your paycheck.
  • How much money are you spending on each of the above categories?
  • Does your spending match your income?
  • Does your spending align with your budgetary goals?

3. Do a scouting report on your own budget

If there is a mismatch between your spending and your desired budget, do some homework. Dig into your spending habits and figure out where the problem is. Spend a month noting every single purchase you make. Online banking makes seeing where your money is going super easy. What's more, many online banking platforms offer robust budgeting tools. However, if you don't use online banking, here are some tips for getting a grasp of your spending:

  • Keep a daily log. 
  • Note prices, if possible.
  • Try to categorize expenses into major categories as you go. 
  • Which expenses fall into the "want" category versus the "need" category?
  •  See how these expenses fit into your budget goals. Are there surprises that take up more of your income than you realized? (Eating out is often a surprise budget "killer.") Think about how you can shift your spending to realign your expenses with your budget goals. 

4. Get back on track with baby steps

Start small when cutting back your budget by eliminating the things you'll miss the least. Simple examples include:

  • Make your morning coffee at home versus buying it. 
  • Fill up your car with regular instead of premium gas.
  • Cut back two drinks from your regular night out. 
  • Buy pizza from the grocery store or make your own at home. 
  • Turn your thermostat down two degrees. 

These may seem simplistic, but it all adds up. The point is to establish control over your spending. Once you determine what you can, and can't, afford, your financial life will become a whole lot easier to manage.

The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.

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