Start 2025 with Savings in Mind

You’ve made it through the holiday season and you’re ready to get back on track financially – but where do you start? Before you can determine the best way to start saving money, you have to understand where your money is being spent in the first place.

Why should I have a budget?

• Understand Your Expenses: After laying out all of your expenses, you can begin to identify key areas where you are spending the most money. This will help you differentiate between any needs versus wants so you can begin to control any wasteful spending.
• Saving Money: Once you see where your money is being spent, you can make informed decisions on how to adjust your spending to achieve your financial goals. This allows you to reallocate those funds into paying off debt or saving up for a down payment on a new house.
• Be Prepared: Understanding your financial situation can help you prepare for emergency spending situations such as car or home repairs. You will already have a handle on your income and know where you are able to cut back to cover the cost or dip into the emergency fund you’ve already started.

How do I create a budget?

• Step 1 - List your income: Before you look at expenses, lay out a list of all of your sources of income for the month. This could come from being self-employed, working multiple jobs, child support or government benefits.
• Step 2 – List your expenses: Create a list of all of your typical expenses for the month such as utilities, rent, groceries, eating out, entertainment, etc. If you do not have a fixed amount for a category, air on the side of caution and allocate a higher dollar amount. This might seem like a daunting task, so take a month to create a list and make a budget for the next month with the information.
• Step 3 – Prioritize your Expenses: Look at the list of expenses you just listed and sort them between needs and wants. Items such as utilities, rent and groceries are necessities and other items such as entertainment and eating out are wants. Just because these are wants does not mean you have to completely remove them from your budget but you might be able to lower their expense amount per month.
• Step 4 – Set a goal: The purpose of a budget is to reach your current and future financial goals. Set a short-term (0 - 12 months), medium-term (1 -3 years) and long-term (3+ years) goal to achieve. Use the SMART Method to help you stay on track to achieve your goals on time.
  • Specific: Be specific about the goal you want to achieve. “I want to buy a new phone by the end of the year.”
  • Measurable: Have a goal that you can measure your progress and success. “The new phone will cost $1,100.”
  • Achievable: Make sure your goal is achievable without being too difficult or too easy based on your budget. “I can save an extra $100 a month by cutting back on eating out at restaurants.”
  • Relevant: Set a goal that is relevant to your and your needs. “My phone is at the end of its usable life and the screen is broken.”
  • Time-Bound: Decide the beginning and the end date to achieve your goal to encourage yourself to reach the deadline on time. “I will start saving in February and purchase the phone in December which gives me 11 months to save.”
• Step 5 – Create a working budget: There are multiple different ways to budget so you have to determine what will work best for you and your situation. If there are any extra funds at the end of the month opt to put that in a savings account or emergency fund for future use.
• Step 6 – Monitor and Review: Throughout each month, keep track of your expenses and any change in income that could affect your budget. Once a budget is created it does not have to stay the same each month. The state of your financial needs and the economy is always changing and your budget should change with it.

Common Budgeting Methods:

• The 50/20/30 Budget: Allocate 50% of your income to needs, 20% is put into your savings and 30% should go to your wants. Since you’ve already listed out your priority expenses you can easily determine which expenses are needs vs. wants while also ensuring you’re saving for the future.
• Zero-Based Budget: Pre-determine where all of your income is allocated for the next month leaving you with $0 at the end of the month. Make sure to include a ‘Savings Expense’ to begin or continue to add funds into your savings account each month. If you have leftover funds after distributing to each expense for the month, assign the extra to your savings expense.
• Pay Yourself First: Decide on a specific amount you will transfer into your savings account each month as your ‘first bill’. After that amount is set aside, determine where the rest of your income can be spent on your expenses. Remember to prioritize paying your needed expenses before setting aside money for wants.

Don’t be discouraged if the first budgeting method you try doesn’t work for you. Re-evaluate your budget and try one of the other methods. There are also many apps out there that you can use to help you budget. Remember to never provide your banking information or login to these apps to avoid any fraud that could occur.