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Illustration of building blocks.
Illustration of building blocks.
Illustration of building blocks.

Published January 6, 2016.
Updated January 1, 2020.

Three steps to a better budget.

A budget takes commitment, but the benefits are worth it, as you gain greater control of your financial future.

Here are three easy steps to creating a better budget:

1. Discover where you are right now.

Use this simple spending diary to track your expenses for a month or two. As you record your expenses, look for patterns, keeping an eye out for unnecessary purchases or things you could have saved for instead of charging to a credit card.

2. Set financial goals.

You're much more likely to achieve goals that are specific, measurable, and realistic. To get started, create goals for the short term (one year), midterm (one to four years), and long term (five or more years). Once you've identified your goals, break them down into manageable chunks, such as monthly amounts to save. Here are some examples:

Short-term: Establish a $600 emergency fund by the end of the year. Save $50 per month.

Mid-term: Buy a used car valued at $12,000 with cash in four years. Save $250/month.

Long-term: Save to make a 10 percent down payment in five years on a home priced around $150,000. Save $250/month  or $3,000 in a year).

3. Create and manage a spending plan.

A spending plan is your blueprint for day-to-day personal finances. Start with your income. List all of your income sources, including paychecks, tax refunds, bonuses, gifts, dividends, interest, pension, and Social Security. Add these all up, as you'll need the total for later.

Move on to your expenses. Use your spending diary to determine how you've been spending your money. Categorize expenses as one of these three: fixed (such as a mortgage or car payment), flexible (these costs tend to vary month to month, such as food, clothing, and utilities), and periodic (insurance and taxes). This will help you get a better grasp of your monthly cash flow.

Tip: Establish an emergency fund to cover unplanned expenses, such as paying for your deductible on an auto claim or hospital bill.

Compare your total income with your total expenses. If your income is more than your expenses, that's good! However, if your income is less than your expenses, it's time to make some changes. That means going back to your spending diary and expense categories to see if there are any additional changes that can be made. 

After you've created a spending plan, track your expenses, pay your bills on time, balance your accounts monthly, and regularly review your goals. If your budget no longer fits your goals, make adjustments.

Celebrate the successes along the way, knowing that you're gradually creating financial freedom  for yourself.

Want help in person? Consider attending one of STCU's Budgeting 101 workshops, free and open to the public.

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