4 Ways to Build a Better Budget Plan

Budgeting doesn’t sound fun, but it is a useful and powerful step you can take towards financial stability and prosperity. You might run into some obstacles when managing your finances, such as:

• Debt: Chasing after debts month after month feels like an endless battle, especially if you have high interest rates.
• Lack of direction: When you don’t know what to do and where to start, it’s perfectly natural to procrastinate.
• Inflation: The macro environment often takes a toll on everyone.

Everyone has their own financial issues. Before you start building your budget, try identifying your own situation and obstacles. Are you looking to pay off debts? Or are you trying to save for a big purchase?

1. Start with Managing Your Expenses

Before you take any action, you need to first understand where you stand. Track your income and expenses by documenting your daily transactions, especially large, unnecessary spending on entertainment or luxuries. There are a lot of expense tracking apps you can choose from.

Once you understand your spending, try to create a spending plan that reflects your goals, whether it’s saving a certain amount of money each month or paying off a certain amount of debt each month. Remember to allow some wiggle room for yourself – unrealistic goals will just frustrate you.

2. Use Your Credit Wisely

It is convenient to purchase through a card, but remember to use it wisely. Don’t forget that you are still spending even though it’s just a quick swipe of a piece of plastic. A good payment history helps build your credit history, which will lead to more financial opportunities and lower interest rates if you take out a loan. On the flip side, overspending can lead to late payments, penalty fees, and a negative impact on your credit score.

Top tips:

• Pay off your credit card balance immediately.
• Pick cards with low interest, no annual fee, and long grace periods. 

3. Pay off Your Debts

Debts are not all scary. Good debts eventually turn into assets, such as a house. The dangerous kind of debts are those that turn into nothing but larger payments, such as card debts or payday loans.

Are you trapped with debts? Here are some warning signs: 

• Always paying only the minimum requested payment
• Not knowing the balances
• Paying high interest rates and/or late fees
• Using cash advances to pay essential living expenses

If you find yourself struggling to pay off your debt, learn about Seattle Credit Union’s debt consolidation options or debt counseling service. We’re here to help!

4. Set Actionable Financial Goals

With or without debt issues, you will need actionable goals to make sure you’re progressing towards financial stability and prosperity. Set at least one goal each for short-term, mid-term, and long-term:

• Start with short-term goals that you want to achieve within the next 12 months. This might include paying off debts or saving a certain amount of money for a vacation or a new computer. Try to be as specific as possible!
• Determine mid-term goals that range from the next 1 to 3 years, such as making a down payment for a car or a home. For this time period of savings, consider using a money market or certificate of deposit (CD) to get a better interest rate. The withdrawal limits will also keep yourself from spending the money you want to save.
• Think about long-term goals that might take more than 3 years, such as retirement or your children’s college funds. Look at your investment options and remember to think about the projective return on investment (ROI). Returns often take time, so try to invest as early as possible if you have the capacity.

With each goal, develop an action plan. Determine how much you need to save each month, or set rules for your spending and savings.

Reminder: Beside these financial goals, establish an emergency account for 3-6 months of essential expense in case you need it. Also factor in your spouses and kids.

To learn more in-depth on budgeting, including tax planning, retirement planning, and insurance, watch our financial workshop recording.