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How to Set a Budget and Stick to It

Budgeting: For many people, the idea of creating a budget is overwhelming. For effective financial planning, you need to know how to set a budget. Even more importantly, you need to stick to a budget once it’s been created. Let’s discuss this from a practical standpoint.

Setting Your Budget: Understanding the Process

Blog How to Set a Budget and Stick to It

One of the first things to be aware of is that your budget need not be set in stone. After a few months, if you’re finding you are having trouble meeting your financial goals, you should reevaluate your budget to see what can be changed. To get started, you need to do a few practical things:

  1. Calculate your income. Make sure when you calculate your income you use the income you actually get after taxes. If you have residual income such as interest income, make sure you calculate what your tax liability might be on that income.
  2. Estimate your expenses. Keep in mind you have two sets of expenses. Housing, car payments, insurance payments are generally the same on a monthly basis. Variable costs including food, fuel and other day-to-day expenses also need to be estimated. You may need to track your variable costs for a couple of months before setting a firm budget.

Once you do this, make sure you create a “slush fund” for those unexpected daily expenses like workday lunch with coworkers. This will help you stay on track with your savings goals. Keep these numbers realistic. For example, if you’re spending $200 a month in lunches you buy at work, you can reduce this amount by electing to carry your meals some days. However, chances are it’s unrealistic to eliminate this spending.

Sticking to Your Budget: Easier Said Than Done

Make sure you keep track of your actual spending immediately after creating your budget. Only by doing this can you ensure you are sticking as close to your budget as possible. Consider using a budgeting application on your cell phone. These applications will help you identify any areas where you are at risk of over-spending.

Don’t beat yourself up if you exceed your spending limits unless it is causing you undue financial hardship. However, if you consistently find you are spending more than you have budgeted in any category, make sure you reevaluate your budget and make changes.

Budgets are important financial management tools and can help you reach your savings goals. Whether you’re saving for a college education, building a nest egg or adding to your retirement savings, contact your Member Financial Representative at Oklahoma Central Credit Union for further assistance or information.

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