When it comes to budgeting, looking back can be just as important as planning for the future. If you’re using your checking account to pay for all your bills and purchases, your statement can provide a record of your monthly spending. Here’s how to use your bank statement to create a budget you can stick to.
Step 1: Access recent bank statements
Your transaction history can tell you a lot about your financial habits – but your spending can vary by month. To better understand your financial resources and needs, you might find looking at bank statements for the past three months helpful.
You can typically download these through your online banking portal or mobile app.
Step 2: Divide your spending into groups
Once you have your bank statements, you can start categorizing your transactions into two main spending categories: necessary and discretionary.
Necessary expenses are “basic” expenses like rent, electricity, and groceries.
Discretionary expenses aren’t key to your survival, but they might still feel important for your quality of life. For example, you might use your streaming services to bond with your family over movie nights. Gym memberships and dining out also fall into this category.
You can divide these two spending categories into as few or as many subcategories as you prefer. For example, you might track rent, utilities, and heating or cooling costs under the single category “housing.”
Using several subcategories might give you a more detailed understanding of your spending, while fewer subcategories could make it easier to track spending.
From here, calculate your average monthly spending for a category. Add up all the transactions in each category from three months of bank statements and divide the total by three.
Step 3: Calculate your average income
If your primary income comes from a salary or other consistent source each month, you likely already have a good understanding of your average monthly income.
If your income varies, you may need to calculate your average monthly income before creating your budget. Do this by adding up your sources of income from three months of bank statements and dividing that amount by three.
To predict your future monthly income more accurately, it’s often best to leave out one-time income sources. For example, funds from that check your grandma sent on your birthday won’t be available year-round.
Step 4: Compare your income to your expenses
Total the average expenses you calculated in step two. By comparing this number to your average monthly income, you can better understand whether your current spending is within your means.
If your expenses are equal to or greater than your income, you may benefit from budgeting for less discretionary spending. If your income is greater, you could set a savings goal to include in your budget.
Step 5: Set realistic goals for each spending category
Now you’re ready to create your budget. List the spending categories you chose and how much money you plan to spend on each in the future.
Use the totals and averages you found in the previous steps as a guide and remember to keep things realistic.
You can keep track of your budget and spending with a notebook, spreadsheet, or budgeting app. If your checking account offers budgeting features that track your expenses in real-time, this might be the most convenient option.
Step 6: Review your bank statements and budget regularly
Your financial needs can change over time – and your bank statements will continue to be a useful tool as they do. For example, you might need to adjust your budget if your car insurance company raises your premiums. Or you might decide to spend more on discretionary items if you get a raise.
Budgeting is a skill, not an exact science
Budgeting is a skill – one you can improve at with practice. Remember to give yourself grace as you learn more about your spending habits. Over time, you can use your budget to build the discipline you need to meet your financial goals.
Disclaimer: Article content is intended for information only. It may not reflect the publisher nor employees’ views. Consult a financial professional before making financial decisions. Publishers or platforms may be compensated for access to third party websites.
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