New To Budgeting? What Banking Tools Can Help?
If you're tired of living seemingly paycheck-to-paycheck while earning a good income, a budget can help you free up cash flow and reduce your expenses. However, starting a budget from scratch can be intimidating, especially if you haven't made many past efforts to track your expenses. When creating a budget, where should you begin? Read on to learn more about some banking and technological tools that can help you create—and, most importantly, stick to—a workable budget.
Spending analysis
Before you can determine into which spending and savings categories your money should go, it's often necessary to figure out where it has been going. If you use a credit or debit card for most of your purchases, this process is often as simple as reviewing a few months of bank or credit card statements. Many credit card companies and credit unions will also issue a year-end spending summary setting out the categories in which you spent the most (and least) money.
If you primarily operate with cash, you'll want to spend a few weeks tracking each penny spent—either writing down transactions as they occur or entering them into a mobile or smartphone app. After a few weeks, you should have enough spending data to get a good idea of where the bulk of your money is going.
Budgeting on last month's income
One problem shared by many first-time budgeters is the cash flow issue. Even if you make more than enough money to cover all your necessities and discretionary spending, the timing of your paychecks and the timing of your bills can often overlap to leave you cash-poor during certain times of the month.
A solution to this problem involves budgeting your current month's spending on your previous month's income. By ensuring that you spend no more than you earned during the last month, you'll help eliminate cash flow problems and won't be cleaning out your refrigerator for leftovers during the last few days before payday. Once a new month begins, you should already have the previous month's income banked and available to use for any expenses that may come up.
Savings sub-categories
Many online banks now allow you to make multiple "sub-accounts" from a single checking or savings accounts. This is ideal when just beginning to budget, as it will allow you to put funds for each budgeted category into a designated account. At a glance, you'll be able to determine how much money remains in your monthly budget for groceries, utilities, clothing, or other expenses.
These accounts can also be ideal for short-term and long-term savings goals. Whether you're saving up for a vacation or getting a head start on your holiday shopping, you'll be able to put these funds in a separate account to minimize the temptation to raid them if you go over budget in another category. If you're interested, check out the online banking in your area for more information.
