Afford the Summer of Your Dreams by Building a Budget
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As concerts, vacations and social gatherings resume, it can be easy to overspend on summer fun, especially coming off of a year of quarantine.
Creating a budget for summertime and beyond can help you keep track of your money, says certified financial planner Jason Dall'Acqua, president of Crest Wealth Advisors, based in Annapolis, Maryland. Dall'Acqua advises doing three things to prepare for building a budget.
How to prepare for your summer budget
Assess your cash flow. Take a look at your cash flow, which is "the crux of everything that happens financially within your household," says Dan Slagle, founding partner and CFP of Fyooz Financial Planning, a firm based in Rochester, Minnesota. Cash inflow is the money deposited into your account after taxes, while cash outflow is the money you spend on expenses.
Review your habits. Habits have changed out of necessity over the past year. When quarantine became the norm, you may have bought more subscription services, takeout and grocery delivery. Now that the world is slowly opening back up, anticipating your expenses can help you budget. Think about the expenses and habits you didn't have during quarantine, like driving, dining out, traveling and paying student loans.
Set goals. Look to the future and consider making a list of all your short and long-term financial goals. Identifying your priorities before creating a budget could make the process easier.
4 steps to create a budget this summer
Once you've prepped for your budget, it's time to create it. Dall'Acqua suggests four steps to create a budget:
Understand your total household income. Take note of your total income, which includes wages, salaries, investments, savings, welfare or other government benefits and other ways you earn money.
Include savings. No matter the season, putting aside money for the future is always a good idea, so work savings into your budget. Save money by contributing to a retirement plan like a 401(k) or IRA. Or stash your funds in a high-yield savings account.
Determine all fixed expenses. Fixed expenses are recurring, so they are less likely to change monthly. These costs include housing expenses, utility bills and car payments.
Allot for discretionary spending. This category includes expenses that vary monthly, like shopping and eating out. Budget for discretionary spending by allotting certain amounts of money for individual items. Or stay within the spending limits of a fixed sum of money. For example, you can budget $50 on eating out and $100 on shopping each month. Or budget a total of $500 to spend at your leisure each month.
Choose a budgeting method that works best for you. The 50/30/20 method is great because you break down your budget into percentages, and it’s easy to follow and track, says Bola Sokunbi, CEO of Clever Girl Finance. You contribute 50% of your income to needs, 30% to wants and 20% to your savings once you follow the steps above. To build your budget, you can use a simple Microsoft Excel spreadsheet, or a budgeting app and online tool with more features.
Revisit these steps and tweak your budget as needed — Dall'Acqua recommends at least one to two times a year. Even if your budget isn’t where you want it to be, don’t be discouraged. Sokunbi says it's most important to do your best to save a little bit extra than planned and build your emergency fund.