Welcome to this episode of Old National’s Real-Life Finance videos. Today, I’m going to teach you how to budget!
So, what is a budget?
Simply put, a budget is a plan for how you will handle your money. It's a road map to give you the money you need to live the lifestyle you want.
Budgeting has many benefits, including:
Let’s look at the steps to a successful budget.
Track Fixed Expenses
The first step to developing a budget is to account for all your fixed expenses. Fixed expenses are the bills toward which you pay the same amount every month, like:
- Rent or Mortgage
- Car payment and
Next, account for the fixed expenses you pay annually, such as:
- Car registration
- Gym membership
- And anything else you pay each year
Enter these expenses into your budget by taking the annual payment & dividing it by 12. For example, if your gym dues are $240 each year, your monthly payment is $20.
Track Variable Expenses
Ever ran out of money before the next payday? Many people have cash that vanishes every month into unknown voids, like stops for coffee or a burger. To really get a handle on spending, write down every dollar that you spend—every latté… everything. Keeping a “money diary” helps you understand where your money really goes.
Download our Budgeting Worksheets
Compare income and expenses to help you balance your budget. Use our downloadable Monthly Income And Expense Worksheet.
Track your spending for one to two months, with a spending diary. Download our Daily Spending Worksheet.
The goal of creating a budget is to save money for the things you want now while making sure you have enough for later. Setting aside money each month builds a foundation for establishing future wealth, while still allowing you to enjoy time with your family and friends.
Within your budget, remember to separate your savings. We recommend the following 3 categories.
Your emergency fund is your first priority. Emergency funds should equal six months of your living expenses.
Short-term savings are the funds that you use for fun things you enjoy doing. How you define “fun” is up to you, but setting aside money for fun is very important. You only live once!
The long-term savings account is where you hold the money for future investments. This account is the backbone of your financial future. Set a goal to save 15% of your income for long-term savings and 15% for your fun savings. Investing $25/week starting at age 18 you could reach millionaire status by age 56.
By setting up and following your budget, you will see your savings grow over time.
Thank you for watching today. Hopefully, you have a better understanding of how to put together a budget. To continue your financial education, look for additional Real-Life Finance videos from Old National.
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