Budgeting & Controlling Expenses

Effective planning and budgeting are essential to remain financially healthy. At MIT Federal Credit Union we’re happy to be a resource for you when it comes to making financial decisions, and setting up a budget, as well as handling changes to that budget when new jobs, expenses and loans change your needs. The information below and accessed via the various links will assist you in creating an effective financial plan of action. Looking for an automated tool with great charts and graphs, and the ability to set goals for yourself? Consider our Money Management tool located in e-Branch on our website. If you’ve got a checking account, log in now and sign up for free. No checking account? Why not open one now?

 

Step 1 —Know Your Financial Situation

You need to know your “as-is” financial standing. That means knowing how much money you have to pay bills, live life, and set aside a bit for the future.

Gross Income - what you earn before taxes and deductions.

Net Income - what you actually have in your pocket after taxes and other deductions are made. This is the number you will use to calculate your budget. If you have an annual number, divide it by 12 to get your net monthly income.


Step 2 —Create a Spending Plan

Developing a spending plan is easy; sticking to it isn’t. Your first step is to make a list of all your monthly expenses, including rent, groceries, personal expenses, gym memberships, insurance, and other costs. Subtract these monthly expenses from your net monthly income.

If your end result is a negative number, you’ll need to either reduce your expenses or increase your income.

If your end result is a positive number, that’s great. You’ve got excess cash and can design a savings plan to make the best use of that excess money. You can also start a retirement savings account.

Use our downloadable, fillable Budget Worksheet to assist you in creating your plan.

There are three different types of expenses:

  • Fixed expenses – these cost the same each month and include things like rent, car payments, subscriptions or memberships
  • Variable expenses – these change from month to month and you can usually make adjustments to reduce them. It includes things like groceries, entertainment, utilities, etc. It can be easy to lose track of this type of spending, especially if you use a credit card to pay for it. Make sure to know your “budget” on these items and stick with it. Otherwise, your month end funds will be far less than you need to cover your Fixed Expenses.
  • Non-monthly expenses – These are expenses that happen less than monthly and can include car registrations, taxes, insurance, tuition or books, etc. To include these items in your budget, simply take the annual amount, and divide by 12, then include that number in your budget as a fixed expense.

When you’re just starting to build your budget/spending plan it can be difficult to separate wants from needs. Some people’s wants are another person’s needs. That’s why the next step is important. Living frugally now is a good habit to develop and will set you up for a healthier financial life later. Splurging is fine once in a while, a nice dinner out to celebrate, a weekend away, or other non-budgeted expenses can be managed once in a while but only if they fit into your budget and don’t become a habit. If you start operating at a deficit, living beyond your means, and relying on credit cards and loans to get by, you can very quickly become overwhelmed with debt you can’t pay, and this can impact your credit and your ability to focus on your studies. One saying is, “Live like a student now, or you’ve have to live like a student later.” Set yourself up with a healthy financial plan and start building good financial habits now.

 

Step 3 —Maintaining a Budget

Once you’ve developed a budget, monitor it and make adjustments as your situation changes. In the beginning, you should review, evaluate, and revise your budget on a monthly basis. You may find that something you thought you didn’t really need is actually something you can’t live without. Or something you thought was a necessity becomes something you can share or do without. Once your income and expenses have stabilized you can review less frequently. The important thing is to decide on a budget management tool that works for you and is easy to maintain. Our Money Management tool works for many and allows you to set goals, manage accounts at multiple financial institutions all from a single web page, and watch your plans become reality. But some people use a simple spreadsheet, or clearly labelled envelopes and a notebook. Whatever works for you, the important thing is to stick with it.

Step 4 —Start Saving Now

You may not a huge amount of extra cash to set aside right now, but it’s a good idea to get in the habit of saving a portion of your income (regardless of how much). As your extra cash increases (with raises, new jobs, or other sources) you can increase the amount you set aside.


Step 5 -  Establishing Good Credit History

Credit history impacts many things; from applying for a credit card, phone plan, or loan, to buying/leasing a car, purchasing a house, renting an apartment, or even applying for a job. Without building your credit, you may not be able to do these things, and you may end up paying extra deposits or receiving a higher rate. So how does a credit report get started and who tracks that information? There are three major credit reporting agencies:

Equifax (Equifax.com)

TransUnion (transunion.com)

Experian (Experian.com)


These three bureaus collect data from many sources including lenders, credit card companies, collection agencies, federal agencies, and more. Employers, landlords, and lenders request a report from one or more of these bureaus and receive a report on your timeliness of payment, where you live, employment history and much more. You should review your report annually to make certain there are no errors on your report. IF not corrected, errors can influence your history and your credit score meaning you may not receive the best rate or even the job or apartment you’re hoping for.


You can receive one free credit report from each credit agency/bureau each year. Visit annualcreditreport.com to order yours. If you are denied credit, you also have 60 days to request a free report from the agency used. The creditor is required to inform you of why you were rejected and provide the name and address of the agency used.


If you’re just starting out, you may have a low credit score due to lack of history of making payments, or because you have no credit cards or loans yet. MIT Federal Credit Union offers a few ways to assist you in building your credit. Just ask us about our starter Visa or a secured loan or credit card.