Housing, utilities, food — create budget to stay in charge of your money
People from all walks of life who set financial goals and reach them generally have one thing in common: a budget.
Budgeting is a practical way to stay in charge of your money, even when life gets unpredictable. With inflation affecting all consumers, the cost of maintaining a home and purchasing the essentials, even groceries, is on the rise. 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.
Regardless of what motivates you to budget, the Better Business Bureau of Greater Houston and South Texas offers the following tips.
Calculate your income. The first step to creating a budget is to calculate your monthly net income, after taxes, so you know how much you are bringing home.
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 are spending your money, rather than where you think you are.
Categorize your spending. Create categories based on necessities (housing, utilities, food, transportation) and luxuries (entertainment, dining out, travel). If you have credit card balances, a mortgage loan, student loans, car payments or other debt, make “debt reduction” one of your categories.
Set up a budget. Once you have an idea where you are spending money, you can set up a realistic budget. Many experts recommend following 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.
Choose a budgeting system. Think about 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.
Pay down debt. If you have credit card or other debts, be sure to include repayment in your budget. One method is to pay off the credit account or loan with the highest interest rate first (the “ladder method”). Another is to pay off the smallest balance first, so you feel a greater sense of accomplishment (the “snowball method”). Use whichever method works best for you. The important thing is to start chipping away at your debt.
Pay bills on time. Consider online bill-paying that eliminates writing checks, buying stamps, etc. Automatic payments can be scheduled ahead of time and can help you avoid late fees and penalties for missed payments.
Contribute to your retirement. Make sure you are contributing enough to your retirement plan to get the full matching contribution from your employer. If you get a raise at your job, try to put that extra money aside into your retirement account.
Save for the big things. Big purchases, such as buying a home or planning a vacation for the whole family, can easily blow your budget. Avoid going into debt for these expenditures by saving up ahead of time.
Build an emergency fund. Emergencies, such as home repair after a storm, can easily throw you off track when it comes to budgeting. Set aside an emergency fund of six months’ living expenses. If that seems too ambitious, start smaller. Having an emergency fund of even $500 may help initially. Also, be sure to check out any businesses for home-related needs with the Better Business Bureau at BBBHouston.org. Choosing a reputable company and avoiding scams will save you money in the long run.
Visit www.bbbhouston.org or call 713868-9500. Leah Napoliello is BBB VP of operations. Send questions to Leah Napoliello, Better Business Bureau, 1333 West Loop South, Suite 1200, Houston, TX 77027, or e-mail lnapoliello@bbbhou.org with address and phone number.