Need some help saving money? A budget is your best friend! But what is a budget, how do you build one, and how can it help you reach your financial goals? Never fear, First Merchants is here to help you build a budget that works for you!

Know Where you Stand

The first step to building a budget is to get a grasp of how much you earn and how much you spend. These two key concepts are the foundation of every good budget.

First, take a look at your net income – that is, how much you bring home every paycheck after taxes, social security, and other items have been taken out. This lets you establish a baseline of how much you can afford to spend each month. If you have a variable paycheck due to hourly wage or freelance work, you may need to do a little math to find the average amount you bring home each pay period. If you’re still unsure, it’s better to make a more conservative estimate.

Then, tally up your expenditures. This is any amount you spend – whether it’s on a bill or a movie ticket. You can use a helpful app to manage this, like First Merchants’ personal finance tool, or you can keep track of your receipts in a given pay period and add them up at the end.

If your expenditures are higher than your income, that’s called “living outside your means,” and is an indicator that you may need to trim back some expenses or establish a stricter budget.

Budgeting Basics

Now you’re ready to build your budget! In a spreadsheet, on paper, or on an app, create categories for recurring, necessary expenses – this includes bills, medication, groceries, gas, etc. Then, estimate how much money you will need to reserve for each category each month or each pay period. So, if you spend roughly $30 a week on gas, you’d put down that you can expect to spend $120 in gas each month. Here, it’s better to be a little bit more generous with your estimates – you can always reallocate leftover funds later.

Remember to calculate in routine maintenance on cars – such as an oil change – and other large items.

If you’re spending more than you earn, try to temporarily cut out any non-necessities, such as eating out, getting coffee, going to movies, or purchasing new, non-essential clothing. It’s not fun, but the goal is to build budgeting into a habit that’s easy for you to maintain – and that may require some strict discipline at first. Once you’ve gotten the hang of making a budget and sticking to it, you can add these things slowly back into their own categories.

Have Goals

Making savings goals can help create a sense of accomplishment as you work towards something big and exciting.

It can be a small goal, such as saving to buy a new phone or going on a vacation, or a large one – such as getting out of debt or purchasing a home. Either way, having a goal makes saving and budgeting more fun and fulfilling.

Pay Down Debt

Another important key to budgeting is paying down any debt you have. You can do this by making “rolling payments” – where you pay a little on all your debt, and when one debt is paid off, that amount gets rolled into the other payments. By using this strategy, you can stick to your budget while paying off debt more quickly.

If you want more help strategizing how to get out of debt, try our debt calculator to help you build the best budget.

Pay Yourself First

Most importantly, don’t forget to pay yourself first. Make sure you have a category for savings and allocate a strict amount to it each month. And then don’t spend it.

You should also try to set aside a separate savings category for emergencies. Even if you can only afford to put $5 or $10 in it each month, that money will still come in handy if you ever have to cover major repairs or medical bills.

And, if you ever spend less in one category than you budgeted, be sure to stick that money into savings. It’s tempting to use that money to buy yourself a little extra treat, but it’s more important to save. The larger your savings balance is, the better off you’ll be when it comes to major milestones like paying for college, purchasing a home, or retirement.

Need help calculating savings? Check out our savings calculator!

More resources

If you need additional help building a budget, visit your local banking center to talk to one of our knowledgeable bankers. They’ll work with you to craft a budget that suits your unique lifestyle. You can also use one of our online budget calculators to jump-start your budget!