Putting together a realistic budget is one of those to-do list items that feels daunting for many people. However, getting a handle on spending, saving, and education expenses is one of the best ways to make living on a budget effective.
Cobalt Credit Union’s Beverly Hobbs, AAMS®, LPL Financial Advisor, answers some questions on good strategies to implement, so that budget planning isn’t a “someday” activity.
Putting together a budget
The first step in living on a budget is to categorize your expenditures. (Download our budgeting worksheet to get started.)
Upon meeting with clients for the first time, Hobbs urges them to be honest with themselves about their spending. “Make a list of all of your regular monthly bills, like rent, mortgage, education expenses, utilities, and insurance,” she suggests. “Then, take a look at your last two to three monthly bank statements and see where you used your debit card.”
Hobbs says it isn’t uncommon for people to use their debit cards for small purchases throughout the month without realizing how quickly this can add up.
“Many items go unaccounted for when it comes to budgeting,” says Hobbs. Consider items that you spend money on throughout the year, even if they don’t necessarily go toward your bills.
- Pet expenses: Hobbs says that people often forget about their pet when budgeting. “Vet bills, food, and treats can be quite costly,” she says.
- Gifts: Don’t just budget for major holidays. Consider birthday gifts, hostess gifts, and any other gifts you know you will need to buy.
- Vacations: Too often, people fund vacations with credit cards. Instead, budget throughout the year for your annual vacation and you won’t have to dread the post-vacation credit card bills. (If you’re itching for a vacation, take a look at, "Easy ways to build a last-minute vacation fund and cover travel expenses.”)
Budgeting to put money aside for these and other expenses can help you stay on the right financial track. Consider this example from Hobbs: “Four Christmas presents at $200 each total $800. If funds aren’t available in savings, these gifts would more than likely be purchased with a credit card. However, if you were to save $67 per month for 12 months you would have saved $804 to spend, preventing the use of a credit card.”
Don’t forget education expenses
Hobbs says that many people realize they should include student loan payments within their budget, but also urges people to think about future education spending for advanced degrees.
It can be a juggling act when trying to budget for college while also thinking about education expenses for your kids. “Those who do think about it will put funds aside for their children first because scholarships and grants are harder to come by these days,” says Hobbs. “Funding an education for their children is a priority for many of our members. However, starting early and looking at different options, such as savings accounts or a 529 College Plan, we may be able to give them a step up when it comes to going to college themselves.”
Pay yourself first
When working out your budget, “Pay yourself first instead of waiting to see how much you have left over at the end of the month to put into savings,” urges Hobbs. “A savings account should not be an afterthought.”
Living on a budget can help you cover expenses as painlessly as possible, whether you’re budgeting for education expenses, a vacation, or just paying your living expenses from month to month. Financial advisors can help you create a budget that will allow you to save for the future while enjoying the present.
Even after you’ve established a budget, plan to visit with your financial advisor at least once a year. Hobbs advises it’s also a great idea to meet with your advisor whenever there is a change in income.
In instances where expenses are shared between two people, both should be involved in the budgeting process and should attend meetings with the advisor together.
An honest budget
“Be honest with yourself when it comes to income and spending,” says Hobbs. “Starting a budget can be very painful, but you’ll start to feel better when you see savings increase and debt decrease.”
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Securities are offered through LPL Financial, member FINRA/SIPC, Insurance products offered through LPL Financial or its licensed affiliates.
The investment products sold through LPL Financial are not insured Cobalt Credit Union deposits and are not NCUA insured. These products are not obligations of Cobalt Credit Union and are not endorsed, recommended or guaranteed by Cobalt Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.