How to prepare a budget
and stick to it
Agenda
Having control over your money is important, both for your financial well-being
and for your peace of mind. In this presentation, you'll learn about preparing a
budget to help you better manage your money and achieve your financial goals:
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Why it’s important to have a budget
Setting financial goals
Making a plan
The steps involved in preparing a realistic budget
Finding ways to save money
Additional information & resources
Why it’s important to have a budget
A budget is a spending and savings plan, consisting of one simple equation:
Total
monthly
income
3
Why it’s important to have a budget
A budget is a spending and savings plan, consisting of one simple equation:
Total
monthly
income
4
Total
monthly
expenses
Why it’s important to have a budget
A budget is a spending and savings plan, consisting of one simple equation:
Total
monthly
income
5
Total
monthly
expenses
Amount
over/
under
Why it’s important to have a budget
A budget is a spending and savings plan, consisting of one simple equation:
Total
monthly
income
Total
monthly
expenses
• Having a budget can help you:
- Control your finances
- Reduce expenses
- Save money
- Pay down debt
- Determine your debt-to-income ratio
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Amount
over/
under
Setting financial goals
• Before looking at any numbers, ask yourself, “Why do I want to create
a budget?”
• Get everyone in your household involved and ask for support
• Set goals and categorize them as short, medium, or long-term
Short-term
(within 2 years)
Pay off a credit card
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Setting financial goals
• Before looking at any numbers, ask yourself, “Why do I want to create
a budget?”
• Get everyone in your household involved and ask for support
• Set goals and categorize them as short, medium, or long-term
Short-term
Medium-term
Pay off a credit card
Grow your savings
(within 2 years)
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(within 5 years)
Setting financial goals
• Before looking at any numbers, ask yourself, “Why do I want to create
a budget?”
• Get everyone in your household involved and ask for support
• Set goals and categorize them as short, medium, or long-term
Short-term
Medium-term
(within 5 years)
(More than 5 years)
Pay off a credit card
Grow your savings
Save for a down
payment on a house
(within 2 years)
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Long-term
Making a plan
• Prepare a budget that is realistic and flexible
• Create a plan that fits your lifestyle and financial goals
General recommended budget percentages
Category
Housing
Food
Personal debt
Transportation
Savings
Utilities
Insurance
Clothing
Personal care
Health
Misc Items
Percentage of income
27%
21%
14%
8%
7%
6%
6%
4%
3%
3%
1%
Source: Alexis Holloway. “How do you feel about your savings plan?” Blogging for Change. Money Management International. April 16, 2010.
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The steps involved in preparing
a realistic budget
Step 1: Determine your income
Look at the money you have coming in:
• Gather information on all household income that is received on a
regular basis
• Do not include income that is not reliable or that may be irregular
What income should I include?
• Employment
• Social Security
• Retirement
• Rental
• Alimony or child support
• Unemployment benefits
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Step 1: Determine your income
Look at what money you have coming in:
• Gather information on all household income that is received on a
regular basis
• Do not include income that is not reliable or that may be irregular
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What income should I include?
What income should I leave out?
• Employment
• Social Security
• Retirement
• Rental
• Alimony or child support
• Unemployment benefits
• Income not received on a regular
basis
• Discretionary bonus that is not
guaranteed
• Legal settlements that are not
finalized
• Alimony or child support that is
not received on a regular basis
Step 2: Determine your fixed expenses
Fixed expenses generally stay the same each month and may not be easy
to adjust.
Fixed expenses
• Mortgage or rent payment
• Car payment
• Student loan payment
• Insurance
• Property taxes and homeowners
insurance (if applicable)
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Step 3: Determine your variable expenses
Variable expenses can change on a daily, weekly, monthly or annual basis and
have the most flexibility for adjustment
• Also includes optional expenses: things that you want versus what you need
Variable expenses
• Groceries
• Credit cards
• Gasoline
• Utilities
• Entertainment
• Cable television
• Personal care items
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Step 4: Prioritize
• Identify expenses that could be eliminated or reduced
• Set goals as to how extra cash will be used, such as to
pay off debt or to save money
• Pay yourself first — save!
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Step 4: Prioritize
• Identify expenses that could be eliminated or reduced
• Set goals as to how extra cash will be used, such as to
pay off debt or to save money
• Pay yourself first — save!
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Step 5: Follow your spending
• Follow your daily, weekly and monthly spending with a system that works
best for you, such as a daily spending diary:
• Determine your debt-to-income ratio (how much you owe vs. what you earn)
to get an idea of how much of your income goes toward paying existing debt
• Use your housing-to-income ratio to find out how much house you can
comfortably afford by estimating your monthly mortgage payment
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Step 6: Keep track of and stick to your budget
• Develop a budgeting system that works for you and will help you stick
to your budget
• Your budget system should help you:
- Track your spending so you know where your money is going
- Plan for the following month’s expenses
- Pay your bills on time
• Consider:
- Online tools such as My Portfolio, Bank of America’s online tool for
budgeting and tracking
- Smart phone or tablet applications
- Traditional systems such as the envelope system
Readjust your budget when you have unexpected expenses
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Finding ways to save money
Food
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Prepare more home-cooked meals
Bring your lunch to school or work
Bring a shopping list to the grocery store
Shop during sales
Use coupons
Buy generic or store brands
Transportation
• Comparison shop for gas
• Use public transportation
• Carpool to work or school to save on
total commuter cost, including monthly
parking fees
• Buy a used car instead of a new one
• Shop competitive insurance offers
• Keep up with regular car maintenance
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Utilities
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Weather-proof your home
Adjust thermostat settings
Turn things off
Use energy efficient appliances and
light fixtures
Monitor utility bills for fluctuations
Shop competitive service providers
Reduce service features
Avoid late fees
Personal care
• Explore exercise options for the
better deal
- Example: exercise group versus
gym membership
• Use at-home cosmetic or skin
care products instead of paying
for salon care
• Read clothing labels to determine
what can be washed at home
instead of dry cleaned
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Health
• Keep fit and eat a healthy diet to
help avoid costly medical expenses
• Visit your doctor and dentist
annually for preventative care
• Understand your insurance deductible
and copayment arrangements
• Visit “in-network” doctors to
lower healthcare costs
• Look into flexible spending healthcare
accounts offered through your employer
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Additional information
and resources
Tips for paying off debt
• Prioritize debt you want to pay off first
• Pay more than the monthly minimum
Reallocate extra money and adjust your budget
• Use unexpected income to pay down debt
- Bonuses, cash gifts, tax returns
• Consider using a snowball debt-reduction method
- Pay off debts with low balances first
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Keys to success
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Establish a budget that is realistic and fits your goals and lifestyle
Track and monitor your progress
Control your use of credit cards
Carry your written savings goals with you as a reminder
Shop around to get the best deal on big-ticket items, such as cars
and appliances
Make revisions and adjustments when necessary
• Look into online tools and resources
• Keep your plan and goals top-of-mind
• Stay motivated — don’t give up when unexpected setbacks occur
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Resources
• To find out more about home financing, prequalify for a mortgage loan* or
talk to a Bank of America loan expert:
- Home Loan Guide at bankofamerica.com/homeloaneducation
• For additional online financial education:
- Better Money Habits at bettermoneyhabits.com
- FDIC Money Smart: Learn more about budgeting, saving and investing
- Visit: fdic.gov Home  Consumer Protection  Financial Education &
Literacy  Money Smart - A Financial Education Program
• Find a Nonprofit Housing Counseling Agency at HUD.gov; on the site select
“Resources,” then select “HUD Approved Housing Counseling Agencies”
• Have more questions about what you learned today? Email us at:
[email protected]
* Prequalification is neither preapproval nor a commitment to lend; you must submit additional information for review and approval.
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Questions?
To ask a question, click “Ask Question” at the bottom of your screen
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