Budget tips

(Family Features) You may think that creating a household budget is as simple as adding all your income and subtracting all your expenses, but there is (or should be) quite a bit more to the equation.
When you only factor in your current earnings and current expenses, you’re not planning for the future. That means any financial goals can be easily deferred, and you may be overlooking the opportunity to shift your spending habits. These three steps can help put you on the path toward better finances and a budget that works for your lifestyle.

1. Take long-range goals and values into account. How you allocate your spending affects your ability to achieve goals months or years down the road. For example, if you’re planning to buy a house, your need to amass a sizable down payment puts greater emphasis on saving than if a major purchase isn’t on the horizon. Similarly, it’s important to understand whether the money you’re spending aligns with your personal values. In other words, it’s important to be sure that your expenses match the lifestyle you desire. If a substantial chunk of your income is going to lunch throughout the work week but you find yourself short on funds to enjoy more time with family or friends, it may be time to make adjustments.

2. Set your priorities. While covering your current bills is an obvious priority, determining which expenses are most important can help keep non-essential spending under control. One approach is to segment your monthly budget into thirds. In the first category, list all of your recurring monthly debts, or the money you owe other people for things like rent or mortgage payments and utilities, as your top payment priorities. The second category should include payments you need to make every month but have some latitude to vary the amount, such as paying more than the minimum balance due on a credit card or loan. Some people also consider groceries as another area where you have some discretion, as to some degree you can shift your purchases to fit your budget. In the last category, account for non-essential spending like entertainment, clothing and personal care, such as haircuts, massages and manicures.

3. Pay yourself. When you’re focused on the money leaving your bank account each month, it’s easy to overlook the importance of keeping some of that money for yourself. Whether you’re saving for a long-range goal, simply stockpiling reserves against unplanned events or working toward retirement (or even better, all three), setting aside money each month is an important step in creating a healthy budget. Having money set aside not only puts you in a better position to satisfy your goals, it can help you avoid unnecessary stress when life throws you a curveball. A healthy savings account also means you can recover more easily and keep your financial commitments on track when unexpected expenses arise.

Beyond simply adding and subtracting a list of income and expenses, taking into account your priorities and goals can help ensure you create a practical budget that works. Find more tips for creating an appropriate financial plan that fits your personal goals and lifestyle at eLivingToday.com.