Also, look for less expensive shopping options (e.g., thrift shops), do more cooking at home, and consider ways to reduce fixed expenses such refinancing a home mortgage, selecting a less expensive apartment or car, and shopping around for insurance policy discounts. Expenses Can be Trimmed- Experts recommend starting with flexible expenses such as heating/cooling, subscriptions, streaming fees, and food.If the money is not needed, it can be rolled over into savings. For this reason, financial experts recommend including a “fudge factor” (a.k.a., a “miscellaneous budget category) in household budgets. Unexpected Expenses Always Occur- It is not a question of “if,” but “when,” unexpected expenses happen.In either case, budgets need to adjusted according to cash flow changes. Others are earning as much or more than before and are saving more due to decreased household expenses. COVID-19 Impacted Budget Priorities- Many people are working less (or not at all) and are struggling to make ends meet.What matters most is that you have a budget, not how you budget. For example, they use computer software or apps or a plain sheet of paper.
Budgeting Methods Vary- Many people use the same budget format from year to year, adjusting for changes in income and expenses.A general online financial goal-setting calculator can determine the correct amount to save. Savings is a Fixed Expense- How much you need to save per month or per paycheck to fund future goals should be set aside as a fixed expense that stays the same from month to month in a budget.Individual Factors are Important- Examples include individual needs and wants, whether you have a stable income (the same amount in each paycheck) or a variable income that fluctuates every month, and whether you prefer to use a “paper and pencil” worksheet, an Excel spreadsheet, or a budgeting app.Ideally, a budget should be hand-written or computer-generated with specific categories of income, spending, and dollar amounts. The goal is positive cash flow, i.e., income greater than savings. Positive Cash Flow is the Goal- A budget is a plan for future income and expenses, including savings.People who budget their money may be inclined to “budget” their calories and self-restrict their food consumption and/or adjust their physical activity to stay within their daily calorie “allowance.”īelow are nine key things to know about budgeting: Financial goals cannot be achieved if there is no money set aside for them.īudgeting has also been found in research to be associated with performance of positive health and financial practices. Budgeting is a fundamental financial planning practice and, without a budget, it is hard to manage other aspects of personal finance including credit, insurance, saving, investing, and achieving goals such as a new car or a comfortable retirement. One of the best small steps that people can take to improve their finances is to prepare (and follow) a budget. Distinguished Professor and Extension Financial Management Specialist Emeritus