In April, our blog “The Importance of Financial Literacy for Service Members” focused on financial literacy and touched on the importance of budgeting. Budgeting is such an important topic and fundamental to your financial health that we’re bringing it back to take a deeper dive and learn even more about this critical skill.
What is Budgeting?
Budgeting is simply the process of planning how to allocate your money over a specific period, like a month, a year, or more. By budgeting, you can help ensure you don’t spend more than you make, that you’re saving for future expenses and making informed decisions about your family’s finances and future.
Why You Should Budget
In addition to helping you avoid overspending and allowing you to take control of your finances, budgeting can reduce financial stress. It gives you a clear roadmap and a plan for upcoming expenses, even unexpected ones. Budgeting promotes good financial habits by encouraging discipline and accountability. It can help you curb bad financial habits like impulse buying or falling into excessive debt. Setting up a budget is a great way to meet financial goals by having a systematic approach to paying off debt, creating an emergency fund, or saving for a car, a house, your children’s education, or a family vacation.
How to Budget
Use these five steps to create your budget:
- Calculate your net income—how much money is coming INTO your household each month? Think salary, gig work, investment income, all after taxes.
- Determine your monthly expenses—track your spending and review bank and credit card statements to calculate how much money is going OUT of your household each month. Be sure to include fixed expenses (predictable necessities like mortgage, utilities, loan payments, insurance costs), variable expenses (can vary month to month; like groceries, entertainment, eating out, clothing purchases), and occasional expenses (non-monthly costs like holiday and birthday shopping, travel and vacations).
- Set financial goals—think long-term goals like owning a house, funding a college education for you or your child, working on your retirement funds; plus short-term goals like a family trip, paying off a loan or credit card, building an emergency fund, buying furniture or home improvements.
- Allocate your income—decide how much you can spend in each category of expenses: fixed, variable, occasional, short-term, and long-term. Evaluate against your goals and assess which expenses are necessities vs. nice-to-haves. The 50/30/20 Rule can help.
- Monitor your spending and adjust as needed. Review and improve regularly.
Real Talk—What If the Numbers Aren’t Adding Up?
Setting up a budget can be pretty easy. But making ends meet? That can be really hard. What do you do if there’s not enough income for all your needs, wants, and your wish list items?
The tough but real answer is to either increase your income or decrease your expenses. Or both. Ways to increase your income include applying for a higher paying job, gaining a promotion with a salary increase, taking on more hours or overtime if your role allows it, or picking up freelance work or “side hustle” gigs.
Ways to decrease expenses include moving to less expensive housing, sharing costs with a roommate, eating out less, shopping at secondhand stores, or choosing less expensive options for entertainment.
Consider a Budgeting App
While there’s nothing wrong with manual methods and tools like using a notebook or spreadsheet, online budgeting apps can be a great help in streamlining the work. Many provide free options. Look for good reviews and an app that meets your needs—if it’s too difficult to use, it could just discourage you. Below are a couple of budgeting apps to consider.
Sen$e—This is the DoD free financial education app offered for the unique needs of military life.
Rocket Money—This app is not free, but is considered an all-in-one personal finance app.
Good luck on your budgeting journey! It’s well worth your time and efforts to have financial peace of mind.
Need more help? Take advantage of free financial counseling from Military OneSource.
1The appearance of U.S. Department of Defense (DoD) visual information does not imply or constitute DoD endorsement.
Photo by Staff Sgt. Adeline Witherspoon
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