Budgets are like diets: No single approach works for everyone; overly complicated plans rarely work for long; and sometimes it takes a few tries before you get it right.
One common stumbling block is thinking of a budget as a punishment rather than a means to achieve your goals. A budget shouldn't serve as a constant reminder that you can't afford something; rather, it serves as a tool to help identify where the money goes each month so you can adjust spending—and saving—accordingly.
If you're new to budgeting or you haven't been successful in the past, start slowly. First, for a few months, write down every cent you spend: mortgage/rent, utilities, food, gas, medical copayments, birthday presents, credit card interest, allowances—the works. Don't forget annual expenses like insurance and income tax. This might sound tedious, but you'll be amazed by the bottom line.
At the same time that you're tracking spending, track your income. Comparing money coming in versus money going out can be quite enlightening. Breaking even or losing money each month may mean you need to find additional income sources and/or aggressively alter your spending habits.
Budgeting tools. With our budget calculator, you can see where your money is being spent and how to best allocate your living expenses. It's a great tool for managing your financial life.
Getting started. Start jotting down your short- and long-term financial goals—buying a new car or house, saving for retirement and vacations, paying off debt, financing college, building an emergency fund, etc. You might not meet all your goals at once, but you can start whittling away at them; over time you'll notice gradual improvements and be encouraged to stick to a budget to meet your goals.
Here are a few suggestions:
- Look for items that stand out as extravagances you can trim or eliminate, at least temporarily.
- Reduce insurance premiums by raising deductibles.
- Always pay at least minimum loan and credit card balances to avoid late charges.
- List accounts by interest rate and pay off those with the highest rates first.
- Create separate savings accounts for different long-term goals and have contributions automatically deducted from your paycheck or checking account—even if it's only a small amount each month.
- Don't borrow from one area to pay expenses in another, especially your retirement accounts—the tax implications alone are daunting.
For more budgeting tips or financial advice, take advantage of Navy Federal's free confidential personal financial counseling.