While a budget may sound like a drag, it is actually the first step toward feeling good about your finances. TIming your budget so that it coincides with when you get paid can make it easier to manage. Budgeting with a long-term view gives you a plan of action so you’ll have money when you want it, like at Christmastime or for a family vacation. If you’re in debt with credit cards or student loans, a budget is the most effective way to prioritize your spending and pay down your debt more quickly.

Typically when people think about budgeting, they think about pinching pennies and cutting back on the fun stuff. But, a budget is way more than that. When thoughtfully constructed and carefully followed, a budget is the first step toward financial freedom.  Living by a realistic budget helps prioritize and monitor spending, avoid credit problems, ensure essential expenses are covered, and financially prepare you for emergencies. With a budget, you’ll get a clear picture of your responsibilities versus your guilty pleasures. The budget will allow you to plan for your financial goals, and you’ll be able to replace your money-related anxieties with the feeling of being in control.


What is a budget?

A budget is simply a tool that tracks expenses and income. It may sound like a mundane or stressful process, but really, this process will actually reassure you and ensure that you do have enough money for both necessary expenses as well for things you enjoy.  It won’t take long, either.

With a sound, honest budget, you can confidently plan for future expenses, reduce unnecessary debt, and ultimately achieve your financial goals – whether that means eliminating debt, making a big purchase, or building your savings for the future.


The simple steps in creating a budget

You can use a computer or internet program, or even grab a pencil and a piece of paper. Just remember: a budget is a living document. If something isn’t working for you, then you have the freedom to experiment. So, make sure your budget is stored in a place where it is easy to make changes.

Once you decide how and where to document your budget, start with the steps below.

1.    Determine your total monthly income.

Include your base pay, allowances, special pay, alimony and child support received, and your spouse’s income.  Use the ‘before tax’ values.

2.    List and itemize your monthly expenses.

Collect all your monthly bill statements, from the power bill to the mortgage statement. Use your LES to identify what deductions and allotments are taken automatically from your military pay.  Be honest with yourself, too. The only person who needs to see your budget is you, so make note of all the entertainment and things you are used to spending money on.

3.    Categorize every income source and expense as either ‘Fixed’ or ‘Variable.’ 

To better analyze expenses, categorize your income and expenses as either “fixed” or “variable.”

  • Fixed sources of income stay the same from month-to-month (examples: basic pay, BAH/BAS, salary, an annuity payment and pension.
  • Variable sources of income include bonuses, part-time work, or commission-based wages are less predictable both in amount and frequency.
  • Fixed expenses are the bills that are the same amount every month (examples: rent or mortgage payments, car loan payments or insurance premiums).
  • Variable expenses change from month-to-month (examples: groceries, clothing, and entertainment).

4.    Include savings as a monthly expense.  

Even a small amount of savings will quickly add up and allow you to achieve your financial goals. TIP: Categorize that $50 a month you want to save as a ‘fixed’ expense so you aren’t tempted to use it toward a new video game or a designer purse.

5.    Subtract expenses from income.

If your expenses total to an amount LESS than your income, then you have a surplus. The difference between income and expenses is either a surplus or a deficit.  A surplus, or ‘discretionary income,’ means that you can allocate more of your money toward savings. On the other hand, if your expenses total to more than your income, then you have a deficit. TIP: Don’t panic!  If you have a deficit. Catching this is the reason you started a budget in the first place! With a clear-cut, organized budget, you can start identify which expenses are unnecessary, and start turning your deficit into a surplus!

6.    Analyze your budget and make changes if they are needed.  

Where can expenses be reduced or eliminated? TIPS: Pay attention to recurring monthly bills such as cable TV or cell phone plans.  Can you switch carriers or do away with cable to reduce the monthly cost? Or can you find less expensive car insurance? Take into account the military discounts that a lot of insurance and service providers offer. Never be afraid to ask about discounts – companies offer them for a reason! Or, if you are driving a lot, ask coworkers that you like if they would be interested in carpooling once or twice a week.

7.    Continually monitor and adjust your budget.

Your budget isn’t written in stone! If you aren’t happy, enter new values and readjust. See what works. You can tweak your budget until you find a combination of expenses that makes both you and your bank account comfortable.  If you accept a raise or a pay cut (or another big financial change in your life occurs), go back to your budget and rework it. TIP: Take half of that raise and apply it to your savings or investment plan!  You’ll be glad you did as you watch it add up.

Money is one of the biggest sources of stress today, putting pressure on both your physical health and on your personal relationships. A monthly budget can help though. It is a key tool in making money less daunting.

The AAFMAA Wealth Management & Trust Financial Dashboard provides financial tools and information.  AAFMAA Members can receive access to this Financial Dashboard by emailing [email protected]. Whether you use this dashboard or an Excel spreadsheet, a budget will allow you to breathe a little easier and sleep a little more soundly at night.


What Do You Want to Budget for?


Solutions for Your Military Family:

Life Insurance, Wealth Management, Home Mortgages, Survivor Services, and more. Learn more about AAFMAA.

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