The Importance of Creating a Budget
Creating a budget
The key to a good budget is including as much information as possible so you can adequately prepare and plan. It's important to keep accurate records of your spending so you can see where you can save money and how much you can reasonably spend.
What is your current income?
The first step in creating a budget is to total your income every month. Include only your take-home pay (your salary minus taxes and deductions). Your income may also include tips, child support, investment income, etc.
What are your monthly expenses?
Next, track your expenses. For bills that vary from month to month, use a monthly average. For example, if your cellphone bill is $45 one month and $55 the next, estimate $50 per month. For annual bills, divide the yearly cost by 12 for a monthly figure.
How much of your income should be spent?
Rent or mortgage payments plus your credit obligations should not exceed 35 percent to 40 percent of your gross monthly income (income before taxes or deductions). The amount you owe on credit cards, monthly car payment, student loans, and other monthly payments should not exceed 10 percent to 15 percent of your take-home pay.
Put it in writing.
Document and categorize your expenses. Tally up everything you spend money on. Don't forget your daily coffee or snacks — those can add up quickly!
Do the math.
The last step in creating your budget is to total your expenses and subtract them from your monthly income.
How'd You Do?
Did you have money left over at the end of the month?
If your income and expenses are EQUAL ...
You might be living paycheck to paycheck. Cut expenses and develop a savings plan in case of emergencies or unexpected expenses.
If you have MONEY LEFT OVER at the end of the month ...
You're doing a good job of managing your expenses. Here are some suggestions for the leftover money:
Open a savings account at a bank.
If you already have a savings account, consider setting up automatic transfers to your savings account. Or if you have direct deposit, ask your employer to put a portion of your paycheck in your savings account automatically.
Investigate whether your employer offers a 401(k) or other employee-matching savings plan. The contribution you make to this type of account is taken out of your paycheck before taxes.
If your total was negative and you DON'T HAVE MONEY LEFT OVER ...
You need to make adjustments immediately. Keep in mind that it's usually easier to cut back on expenses than increase your income. Analyze your budget to see where you can cut expenses — personal or entertainment expenses are often the easiest things to cut.
Call your utility, phone, cable, cellphone providers. Cutting those bills could take just a phone call.
Consider increasing your income by getting a second part-time job or by working overtime.
Take charge of your finances and your life by setting financial goals, planning a budget, and sticking to it.
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Summit State Bank will never phone, text or email you to request private information such as account number, social security number, card number, or password. Do not respond to requests for such information.
When logging in, you may be prompted to use a one-time code, in addition to your username and password. This code will be communicated to you through either an automated voice call or a text message.