How can you stick to a budget if you’ve never created one? That’s where Wisconsin credit unions can help. Capital Credit Union is a northeast Wisconsin–based credit union working hard to financially empower our members through easy-to-use tools and resources.
In order to have a handle on your cash flow, you need to know how much money you have coming in and how much money you have going out. If you need some help creating a monthly budget, we have a few tips to help you get started.
Total Your IncomeThe first step to creating your monthly budget is determining how much income you bring in each month. If you make a fixed amount each week, this should be fairly easy for you to total.
On the other hand, if you have an irregular income, things may be a bit trickier. For instance, if you’re a realtor, you may work on commission and only get paid when you sell a house. That can lead to vastly different amounts of income coming in from one month to the next. But there are some best practices you can follow to help estimate how much monthly income you have at your disposal.
A good rule of thumb is to base your average monthly income on the lowest amount you’ve recently earned. Take a look back at your salary over the last year, or even the last few months, and use the lowest amount you earned during that time frame as your baseline.
If you make more than that, excellent! You’ll have a little extra on hand to save or spend. But since a higher income is not guaranteed, you should work from a more conservative estimate. If you’re an independent contractor, remember to set aside money to pay for your taxes and only use your net pay for budgeting purposes.
Be sure to factor any additional earnings into your monthly income as well. For instance, if you have a side hustle, generate income from a rental property, or work a seasonal position, add that income to your monthly budget. Once you’ve totaled your monthly income, it’s time to figure out where all your money is going.
Track Your ExpensesWrite down all your monthly expenses. You can use a budget tracking app, a notepad, or your personal computer. Certain expenses will be easier to track than others. For instance, some monthly expenses may not change much from month to month, such as your rent or mortgage payment. On the other hand, expenses like utilities may vary quite a bit from one month to the next. You may incur other expenses only once or twice a year so these can be a little trickier to account for on a monthly basis.
For expenses that change from month to month, collect your statements over the last year. Total them up and then divide by the number of statements you have to get your monthly average. Some utility providers may also allow you to pay an estimated payment each month based on your average utility consumption. This will allow you to pay a set amount monthly, which will likely be easier to budget. You can contact your utility provider to see if estimated payments are an option.
Infrequent expenses may include accounting or tax software fees for doing your annual taxes or funds for gifts for months with holidays or birthdays. These types of one-time fees can be factored into your budget for the month they are likely to occur. On the other hand, you may want to factor other infrequent expenses, such as annual car maintenance or home repairs, into each month’s budget.
Oil changes and other car maintenance needs can set you back if you fail to account for them in advance. According to AAA, car maintenance totals about $792 on average each year. So you should budget $66 per month into your monthly budget to cover this particular infrequent expense. Research the average cost of annual home repairs and other types of infrequent expenses to know how much to allot for them in your monthly budget.
The 50/30/20 ruleOnce you’ve calculated your monthly income and tracked your monthly expenses, you’re ready to create your budget. You’ll likely find you’re either over or under budget. If you’re under budget, excellent. You can allot more money in your monthly budget for savings, paying down debt, or other financial goals you may have.
A good rule of thumb for crafting a monthly budget is to follow the 50/30/20 rule. This rule states that your income after taxes should be divided into three categories:
- 50 percent should go toward needs
- 30 percent toward wants
- 20 percent toward paying down debt or building up your savings
This is a good model to follow, but you may need to adjust based on your particular situation. For instance, if you live in a high-cost city, you may need to allocate 60 percent toward needs and spend only 20 percent on wants. But the 50/30/20 rule should more or less give you a good idea of how much you should be spending on each area of your life.
If after totaling your budget, you find you’re overspending in one or more categories, see where you can cut back. Perhaps you can pull the plug on the cable or cancel some of your streaming services.
If you’re overspent and struggling to find ways you can save money, stop by a Capital Credit Union location. We may be able to help you refinance your mortgage or consolidate your debt to get on track with your budget. Plus, we’re one of the best Wisconsin credit unions you’ll find, always striving to help our members achieve financial freedom.
Whatever your financial goals are, we’re confident they’re within reach. With a little guidance from our team of financial experts, you’ll be able to budget for your current situation as well as plan for your future financial dreams.