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Budgeting Basics by Kevin Sutton '16

Kevin is a graduate of the Class of 2016, and is the coordinator of the Making Cent$ Financial Literacy & Wellness program on the SUNY Oneonta campus.
Kevin Making Cent$ logo

Hardly do I ever need to make the argument to people that budgeting is important, or at the very least it is a positive skill to have! Having said that, there is a huge difference between people philosophically agreeing with the benefits of budgeting and (literally) putting pen to paper to make a budget themselves. This “call to action” may seem like the most trivial thing, but there is typically some form of resistance for people to do so. A lot of people may believe that somewhere out there a “better” version of themselves is making slightly different choices. Perhaps this alternate version takes the stairs in lieu of the elevator when arriving at work, or makes it a habit to call their family every week. This version is probably also taking an active role in budgeting their money. All of the above are actually achievable with just a slight adjustment to our behavior.
           Creating your first budget is going to be the biggest step. Even though people may have an idea of a budget in their head, in order to be truly effective there needs to be a focused effort on doing it. It is recommended to make a budget one month at a time and to make a new budget each month. Keep the following five steps in mind when it comes to creating your budget:

Step 1 - Identify money resources. This is your income and other sources of money. To make things easier, use the “after tax” value.

Kevin Note: Do not include prospective gifts as income here; be conservative and only account for anticipated earnings.

Step 2 - Identify all expenses. This is the more time consuming phase. List out all your expenses. Common areas include rent, phone, loans, food (grocery and eating out), and utilities. Go through each area and write out how much you think is a realistic amount to spend for you in that area in a month time-frame.

Step 3 - Compare resources to expenses. Add up all your expenses from step 2 and then subtract that from your income in step 1.

Kevin Note: If this number is negative, stop here and go back through your expenses and find ways to cut back your spending in some areas.

Step 4 - Identify an amount to save. This is a very important step. You want to find how much you can afford to save. Look at the amount left after you’ve subtracted your expenses from your income. Take a portion of this and mark that as your amount to put into savings each month. When in doubt, shoot for 10% of your monthly income. For your first budget I do stress to only use a portion of your leftover amount for savings because you want to give yourself a buffer in case you underestimate some other expenses.
Once your savings amount is decided, you want to give yourself a “savings bill.” Treat this just like any other expense and move it to the top of your budget. This simple change in mindset of prioritizing saving can help you make behavioral changes that can benefit you financially.

Step 5 - Track, track, track! Follow through and hold yourself accountable. This will help you make more realistic future budgets as well!
This is an example of what your budget sheet may look like at the end of your first month. The $108 buffer left was useful as some areas were over budget.

 sample budget

             Keep your budget sheet in an easily accessible place so you can accurately track your expenses. Your refrigerator or bedside table may be good places to keep it in your daily view. It is also important to reward yourself, especially after your first month budgeting! Give yourself that positive reinforcement to keep making those healthy decisions and eventually you may turn into the “better” version of you in no time!