Six Steps Toward a Better Budget in 2018

Essential Tips to Identify Your Opportunities

2018_BudgetingCreating a monthly budget doesn’t have to be complicated. At its core, it boils down to basic math – you take your total income and subtract your total expenses. As long as you’re in the positive on that equation, you’re in good shape.

While you can certainly utilize apps like Mint and Goodbudget to track spending at a meticulous level, understanding the big picture will help you budget smarter in 2018. Following the steps outlined below can help you take the first steps.

STEP 1: CALCULATE YOUR MONTHLY NET INCOME

Start with the basics. Your total net income is your take-home money after taxes, Thrift Savings Plan (TSP) contributions, and allotments (if you have any). Be sure to factor in any regular entitlements, incentives, or bonus pay you might have. It’s probably a good idea to double check your Leave and Earnings Statement (LES) to make sure everything is accounted for and accurate.

STEP 2: LIST THE ESSENTIALS

Next, list all the monthly expenses that you would consider basic necessities, and track how much each one costs. You can do this by hand with a pencil and paper, or in a program like Excel. I like to use Google Sheets, so I always have access to it regardless of which device I’m using. 

Many of your monthly expenses will be fixed costs that don’t change from month to month, but you may have to come up with an estimated average for others. For example, your rent or mortgage payments shouldn’t change much, but your heating and cooling costs can vary pretty dramatically based on seasonal weather. Your list might include things like:

  • Rent or mortgage payments
  • Car payments
  • Car insurance
  • Renter or home owner’s insurance
  • Utilities like gas, water, and electricity
  • Mobile phone and data plan
  • Student loan payments
  • Basic food and fuel

This simple list should cover a great deal of your expenses. If you have credit cards, retail credit lines, or another form of debt, be sure to factor in reasonable payments, and don’t fall into the minimum monthly payment trap.

STEP 3: DO THE MATH

Now that you have your total net income and the cost of your basic necessities, some simple subtraction will tell you the key number – it’s your net cash flow. Hopefully you’re in the positive, because there are still some significant costs to account for. You may want to keep a slot open for miscellaneous expenses. If you’re following along, at this point you’ve effectively created a monthly balance sheet for your personal finances.

STEP 4: FACTOR IN OTHER COSTS

Tracking expenses month-to-month and including certain variables you can estimate like food and fuel is a great start. But don’t forget to factor in one-time or annual expenses that might otherwise throw a wrench into things. This could include things like property tax, car registration, back-to-school expenses for the kids, car or home maintenance, or vet bills. For example, if you know you need to take Fido to the vet once a year for a wellness exam and vaccinations, look up how much it cost last year, and divide it by 12 to factor it into your monthly budget.

If you’re having trouble identifying these kinds of annual expenses or remembering how much you spent in years past, check your records! Just don’t let them sneak up on you!

STEP 5: LOOK FOR COST-CUTTING OPPORTUNITIES

Here’s where you get into the details and look for ways to reduce miscellaneous, non-essential spending. Your monthly food budget can vary wildly from month to month depending on what you cook at home and how often you go out to eat. Creating a meal plan and sticking to it is one way to make a big impact on your budget. For example, maybe you can skip the line at Starbucks and brew coffee at home.

Are there any other subscription-based services you could do without? Could you turn off your premium cable package and settle for Netflix? What about that gym membership you hardly ever use?

STEP 6: PLAN AHEAD & SAVE

Finally, ask yourself this question: if you were to get hit with an unexpected expense right now, how would you pay for it? According to a recent survey, 57% of Americans say they have less than $1,000 in their savings account. Even though most of us fall short, financial experts will tell you that you need to save enough to cover six months of expenses.

Creating a financial cushion through smart budgeting is one way to get there. Hopefully once you’ve mapped out your budget and made some of those tough choices, you can afford to put some money into savings each month. Every little bit helps.

Jake Butler

About the author: Jake Butler

Jake Butler is a staff writer at Pioneer Services who understands the challenges facing modern military families. He writes informative and entertaining pieces about military life, financial education and everything in between. Follow Jake on Google+.

Contact: Jake Butler

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