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Budget: What is it and how do I build one?

How to budget

Budget: What is it?

A personal or household budget is an itemized recap of forecasted income and expenses for a defined period of time, most frequently tracked by month. While the word budget may cause your skin to crawl, it gives you the freedom to allocate dollars before you spend them. In this way, a budget is a useful tool to help achieve your financial goals.

Why Build a Budget

If you are one of the many people for whom the word “budget” is the same as the word “denial,” you may be surprised to learn the opposite is true. A well-designed budget is the best way for you to reach goals and achieve financial independence without having to sacrifice all of life’s pleasures. An effective budget will help you:

  • Achieve Goals: Keep your finances in line with the dreams you set for yourself.
  • Use Money Efficiently: Ensure you don’t spend money where you don’t need to.
  • Become Financially Secure: Life is filled with surprises. Being financially fit will benefit you when unforeseen circumstances arise.
  • Identify Detrimental Habits: Expenses should be less than income. Having a budget will help you see when expenses are greater than your income, and where it’s going. This can help you correct some detrimental financial behaviors.

How-To Build A Budget

Step 1: Determine Your Income

Whether you’re married, sharing a home, or single, you need to know how much money you have coming in before you can decide where your money should go.

Step 2: Review Your Expenses and Track Where It Goes

We spend what we make. Set yourself up for success with automatic, monthly payments to pay your bills yourself. Remember that “you” are an essential expense and strive to put at least 10 percent of every pay check towards savings that can be used for big-picture goals such as a home purchase, college tuition, and retirement.

  • Write it all down
  • Keep receipts
  • Use debit or credit card
  • Monitor ATM use
  • Use expense tracking software 

Once you’ve calculated your total monthly income, you can start to separate it into spending categories, such as:

  • Emergency Fund: This fund should cover your expenses for 3-6 months to protect you from an unexpected event such as losing your job or facing a situation in which you are unable to care for yourself and your family. Tip: Keep this account liquid by putting it in a savings account, CD, or Money Market.
  • Housing: This includes rent or mortgage, household maintenance and repairs, Homeowner’s Association (HOA) fees, renters and homeowners insurance, and property taxes.
  • Savings: Remember to pay yourself. Experts recommend that at least 10 percent of your earnings should go towards savings for long-term goals, like retirement or a college fund.
  • Utilities: Household budget category for utilities should include gas, electricity, water, and sewage, land line and cell phone payments, cable television and Internet access.
  • Health Care: Be sure to allocate funds such as premiums for health, disability, vision and dental insurance. Prescription drugs, eyeglasses and contacts, and other health aids go in this category, too. Long-term care insurance to this budget category would be included.
  • Consumer Debt: Credit card bills, student loans, installment agreements and car payments.
  • Food and Groceries: Whether it’s shopping for groceries, grabbing a coffee or dining out with family and friends this amount will depend on family size and eating habits.
  • Personal Expenses: Salons, hair care, clothing, gifts for others, clothes, and dry cleaning make up a few of the countless items that could go into this category.
  • Entertainment: After you have met all of your “needs” you probably still want to have some fun with whatever funds are left over. Many individuals spend 5 to 10 percent of their income on entertainment which could include going out to a movie, putting aside money for a dream vacation or treating your family to a day skiing in the mountains.

Step 3: Construct the Budget

  • Paper budget form: Grab a pen and paper and get started.
  • Online budget forms and other money saving apps can help you track spending activity on a daily, weekly, and monthly basis.
  • Spreadsheet: Google Docs and Microsoft Excel provide an easy input format that can even be shared with other family members to keep them accountable for their spending habits.

Step 4: Review and Repeat

A budget is not a one-time, set-it-and-forget-it project. Each month you’ll need to see how your actual income and spending matched up to what you predicted. The good news is that once you have an initial budget built, it’s easier to adjust moving forward. The more you do it, the easier it gets.

Budget planning
Obstacles to Getting Started

It’s easy to procrastinate or, like a fad diet, say that you are going to start tomorrow. Maybe you feel there is never enough money to start saving, or you feel guilty over past purchasing decisions. Regardless, now is the time to start. Lifestyle changes can create fear within us and the reality of our spending habits can be hard to swallow. No matter where you’re at in the budget process, it’s important to be patient, utilize budget tools that can help, and seek support from others with similar goals.

Characteristics of Goals (S.M.A.R.T.)

  • Specific
    • What exactly do you want to achieve?
    • How much money do you want to save and by when?
    • Why do you want to reach this goal?
  • Measureable
    • Identify exactly what it is you will see, hear, and feel when you reach your goal.
  • Attainable
    • Is the goal attainable? Investigate whether the goal is acceptable to you. Might need to be more specific here. What about something like: Is this something you can honestly achieve by sticking to a reasonable budget?
  • Realistic
    • Is this an objective toward which you (and perhaps a friend or significant other) are both willing and able to work?
    • Do you have the discipline to stick to your budget?
  • Time-bound
    • Set deadlines for yourself and your family members and hold yourself to them.

Financial Goal Chart

FREE Money Management Planner Download from BALANCE AVAILABLE Here

(Goal Examples: Short term goal: Emergency savings account -Mid-term goal: Repay debt - Long-term goal: Fund retirement)

Goal planner

Goal Planner (PDF)

NEED more help? Get BALANCE, A Free Service for Financial Fitness

For a lot of people, becoming financially fit is tough – and even more difficult to maintain. At some point in life, everyone faces financial challenges. Helping you become savvy financial consumers is an important part of why Seattle Credit Union exists. Whether it’s paying off debt, getting back on track after a financial crisis, or even learning to build a budget to save for important goals like a college education or new home, BALANCE is an ally on the path to financial stability.

BALANCE is a free service for all Seattle Credit Union members that provides:

      • Financial education (articles, webinars, podcasts, newsletters, etc.)
      • Resources (income, debt, and loan calculators, toolkits, etc.)
      • Access to attorneys
      • Coaching from professional, third-party counselors on:
        • Debt and budget 
        • Credit report reviews 
        • Student loans 
        • Homeownership 
        • Bankruptcy
      • Services are offered in Spanish both online and over-the-phone.

Check out this free service online or toll free at 888.456.2227. If you are having difficulty paying off a Seattle Credit Union loan, please talk with our Member Solutions team at 206.398.5757. Our team is happy to answer any questions you may have about BALANCE and how it can benefit you become financially fit.