Your Budget
Budgeting for the New Year
6steps to help you get your financial house in order. By Julie Steed
Would you like less debt, more savings and the ability to invest for your future? The beginning of a new year is the perfect time to resolve to get your financial house in order once and for all. The first step to financial freedom is creating a budget. After that, you can begin to pay off debt and save money to suit your needs. “Budgets are essential,” says Army spouse Amy Mullee. The Mullees are juggling the typical costs of a family of four and also own two homes. A precise monthly budget helps them save money, cover all of the bills and still have cash left to use just for fun. Stephanie Wilmoth, Army spouse and Financial Advisor with First Command Financial Services, agrees that budgets are necessary for military families. “By carefully managing your spending, you can avoid debt, build an emergency savings account and invest for your future,” says Wilmoth. Read on to find out exactly how you can start to create this kind of financial freedom.
Step 1 Track your spending
for at least two months. “Knowing where you spend your money will help you understand where you can cut expenses and allow you to construct a realistic budget,” says Wilmoth. “If you find your monthly outflow exceeds your monthly income . . . you’ll be better prepared to address it if you know where your extra money is being spent.” There are many ways to track your spending. You can download a premade budget form, fill it out and make changes to it as you progress through the month. (Check out DaveRamsey.com for free downloadable forms or contact a financial advisor for assistance). Or you can take the Mullee’s approach and write your expenditures in a mutually agreedupon location. “Everything we spend gets written down on a piece of paper. Every time we go to the grocery store or buy gas, it gets written on the dry erase calendar. We can keep track of our spending that way,” says Mullee.
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Step 2
Take action. Once you have tracked your money and know where it is going, follow Wilmoth’s tips for getting (and keeping) your spending and saving on track: • Pay off any outstanding, highinterest debt, or create a schedule for doing so. • Establish an emergency savings account equal to 2-3 months’ income. • Start “paying yourself first” by establishing saving and investing allotments. • Use a debit card instead of a credit card. • Give yourself a “cash allowance” for extra expenses. The Mullee’s include a discretionary spending fund in their monthly budget so that they have “fun money” to spend without dipping into cash needed for bills and savings.
Step 3
Consider systematic saving. “Rather than putting away money whenever you have some extra cash, or saving whatever is left after paying all of your monthly expenses, set up a Military Pay Allotment,” says Wilmoth. “Pay yourself first, and then stick to a budget with the balance of your income. You’ll be surprised how much you will accumulate over time with this ‘out of sight, out of mind’ approach.” Systematic saving allows the Susan Burks’ family (Air Force) to save money without even thinking about it. “Savings comes off of the top, before we ever get the paychecks,” says Burks. This systematic saving allows her family to use remaining money to cover monthly expenses.
Step 4
Don’t get overwhelmed. If you feel like you are in a particularly difficult financial situation, you can take small steps to get started. “Putting just an additional $25 per month toward a credit card, you could pay the balance off months earlier, freeing those monthly dollars to build savings and start a financial plan,” says Wilmoth.
Budgeting For A PCS? The disruption of a PCS can challenge even the most precise budgets. Jason Hull, owner of Hull Financial Planning, suggests preparing for these unexpected costs well before the moving truck arrives at your house. • Gas for cars you will be driving to your new home or for the moving truck if you are moving yourself. • Lodging costs while traveling to your new duty station and/or while waiting for your permanent home to become available.
Step 5
Do more with what you already have. “Take a look at your monthly Federal Income Tax withholdings,” says Wilmoth. “If you are receiving a large return at the end of the year, it might make sense to reduce the amount being withheld from your paycheck so you’ll have more take-home pay to work with.” (Consult a tax professional first). “If you consistently owe additional taxes, consider reducing your taxable income by making pretax contributions to a qualified retirement plan like the Thrift Savings Plan (TSP) or an Individual Retirement Account (IRA).” Army Major Hank Coleman, a finance writer and blogger, suggests another way to find more money to save and investment. “You can increase your college [or other savings investments] every January equal to your cost of living pay raise, live off the same salary that you were earning the previous year and not even feel a dent in your wallet,” says Coleman.
• Meals you will need to purchase while traveling. • Extra or accelerated car maintenance that may be required before or after driving from one assignment to the next. • Carrying costs for one or both homes. • Rental and utility deposits required for your new home or apartment. • New furniture and home supplies. For more help budgeting for all aspects of a PCS, download The Relocation Budget Planner at militaryonesource.mil.
Julie Steed is a freelance writer and Air Force spouse.
Step 6
Plan for big expenses. Christmas, birthdays and vacations can wreak havoc on your credit card. Instead of waiting until the last minute, add vacation or Christmas savings as a budget expense. “Even if it’s $25 a month to build up over the year, it will reduce the temptation of using credit during these times,” says Wilmoth. “Small savings add up to big savings over time.”
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Easy Ways To Reduce Spending & Increase Savings
Stephanie Wilmoth, Army spouse and Financial Advisor at First Command Financial Services, suggests these easy ways reduce monthly spending. • Make and use a grocery list – people who shop with a list tend to spend less. • Pack your lunch and eat out less. • Opt for a pay-as-yougo cell phone to avoid expensive contracts. • Spend what is left after saving. • Pay yourself first.
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