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10 things to help you create a budget

As people work at different paces to achieve financial wellness, one tried-and-true tactic applies across the board: maintaining a budget.

10 things to help you create a budget

People are budgeting more than ever, and nearly 9 in 10 think everyone should budget, according to Debt.com.  Budgeting is a practical way to stay in charge of your money - even when life gets unpredictable. 

Having a budget means knowing exactly how much is coming in and going out each month and planning where and when to spend. Plus, budgeting is essential if you want to pay off debt.

The following tips might come in handy as you embark on your journey to financial wellness, but remember: A trusted financial professional is your number one option when it comes to seeking help.

Couple calculating bills at home using laptop and calculator. Young couple working on computer while calculating finances sitting on couch. Young  man with  wife at home analyzing their finance with documents.

 

1. Calculate your income.

Before you start the engine, you have to give it fuel. That's why the first step is to calculate your monthly net income after taxes and deductions so you know how much you bring home. If you have several sources of income, you may need to check your bank accounts and pay stubs or consult your accountant on this step to be sure you start accurately. 

Young african american woman money putting coins into a piggybank at home. Mixed race person counting coins while financial planning in her living room. Saving, investing and thinking about the future

 

2. Track your spending.

Whether you prefer an app on your phone, computer software, or simply a notebook to jot down your expenses, keeping track of your spending is critical. It helps you see where you spend your money rather than where you think you are. You can use this budget worksheet from the Federal Trade Commission to calculate your income and expenses or check out this online budget planner from the Financial Consumer Agency of Canada. 

Man working at home

 

3. Categorize your spending.

Create categories based on necessities (housing, utilities, food, transportation) and luxuries (entertainment, dining out, travel), plus charitable donations. If you have credit card balances, student loans, car payments, or other debt, make "debt reduction" one of your categories. 

Don't forget about any seasonal home maintenance tasks that need to occur on a regular basis, and remember to check with your tax professional about your estimated payment or refund.

Young woman analyzing bills while writing in diary. Beautiful female is using digital tablet at table. She is sitting on sofa at home.

 

4. Set up a spending budget. 

You can set a realistic budget once you know where you are spending money. Nerdwallet (a BBB Accredited Business) suggests trying the 50/30/20 rule. Allow 50% of your income for your needs, 30% for wants, and use 20% to pay down debt or save. 

Consider contacting a financial advisor to choose the best spending budget for your situation. Find a financial planner near you.

Young entrepreneur using his laptop and analyzing bills and taxes in the living room.

 

5. Choose a budgeting system.

Consider your financial goals and personality and select a budgeting system that works best for you. For example, a cash-based system can help curb overspending. A zero-based budget, where you account for every dollar you earn each month, is great for people who love to plan. 

6. Pay down debt.

If you have a credit card balance or other debts, include repayment in your budget. Here are two methods:

Ladder method

Pay off the credit account or loan with the highest interest rate.

Snowball method

Pay off the smallest balance first, so you feel a greater sense of accomplishment.

Use whichever method works best for you. The important thing is to start chipping away at your debt. Also, call your credit card company and ask if they will lower your interest rate. Some lenders will agree to keep you from transferring your debt to another lender with better terms. Shaving even a few percentage points off your rate can save you thousands and help pay down your balances faster. Visit the National Foundation for Credit Counseling for help and advice on getting out of debt.

When considering credit counseling or debt consolidation to repair your credit, search BBB.org for trusted, BBB Accredited companies that will help you. Read BBB's study on credit and relief and beware of bad actors.  

Shot of a young woman using a laptop and  going through paperwork while working from home

 

7. Pay bills on time.

Consider online bill-paying that eliminates writing checks, buying stamps, etc. Automatic payments can be scheduled beforehand and help avoid late fees and penalties for missed payments. 

Research carefully if you consider a bill-paying service to be sure you find one you can trust. Read BBB reviews and complaints and always do business with BBB Accredited Businesses who have agreed to adhere to the BBB Standards.

Millennial wife and husband sorting out bank papers, check invoices, paying bills via e-bank on laptop sit on sofa smile feel satisfied. Enough money, payments, profit, financial management concept

 

8. Contribute to your retirement.

Ensure you contribute enough to your 401K plan to get the full matching contribution from your employer. If you get a raise at your job, try putting that extra money into your retirement account. You survived on that income for this long so that you may not miss that extra cash, and your retirement account will significantly benefit. The U.S. Department of Labor and the Financial Consumer Agency of Canada offer ways to prepare for retirement.

Find a trusted retirement planner near you by checking the BBB directory and looking for the BBB Seal- It's the Sign of a Better BusinessSM.

Young Asian couple cooperating while going through their financial bills at home.

 

9. Save for the big things.

Big purchases, such as vacations or holiday gifts for the whole family, can easily blow your budget. Avoid going into debt for these expenditures by saving up ahead of time and only spending what you were able to save. Many banks and credit unions offer savings clubs that might help.

Woman comparing deals on the internet

 

10. Build an emergency fund.

Car repair, home repair, unexpected medical expenses, or job loss can easily throw you off track regarding budgeting. Financial experts suggest setting aside an emergency fund for six months of living expenses. If that seems too ambitious, start smaller. An emergency fund of even $500 can get you out of many financial scrapes.

More information for US consumers

More information for Canadian consumers

Additional financial wellness resources