Budgeting in 2017: 5 Tips Everyone Should Know

By Maurie Backman Markets Fool.com

Imagine if there were a way to seamlessly keep your spending and expenses on track. Well you're in luck, because this magical tool actually does exist, and it's called a budget. However, you may or may not be surprised to learn that in a recent U.S. Bank study, roughly 60% of Americans admitted that they don't follow a budget. If you've talked about creating a budget before but have yet to take the leap, here are a few tips to set yourself up for success.

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1. Accuracy is key

For a budget to really serve its purpose, its contents will need to be as spot-on as possible. When you sit down to draw up a budget, don't just guess at those numbers. Comb through your files, examine your credit card bills, and study your bank statements to get a truly accurate sense of where your money goes. Remember, too, that what you spend one month in a particular category may not carry through to the next month.

Case in point: your electric bill. You'll probably pay more during the summer, when your air conditioner is perpetually blasting on high, than during the spring, when you're using much less energy. But basing your monthly electricity costs on the $80 bill you typically get in April or May might cause you to fall short when you get a $250 bill in July. That's why you'll need to review your spending throughout the year rather than rely on a single snapshot.

2. Account for one-time expenses

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Maybe you belong to a warehouse club that charges a membership fee once a year. Or perhaps you have home maintenance expenses, like that annual gutter cleanout, that only come up once every 12 months. Whether your one-time expenses during the year amount to $100 or $1,000, be sure to include them in your monthly budget.

Along these lines, don't let holiday shopping catch you off guard. In 2015, the average shopper took on $1,073 in debt during the holidays. But if you rack up a similar amount of credit card debt because you fail to account for seasonal spending, you could lose $100 a year on interest if your card charges 18%. It's a much better idea to estimate how much you typically spend for the holidays, divvy up that total over 12 months, and save in advance.

3. Don't include your bonus

If you typically get a year-end bonus at work, you may be tempted to factor it into your budget. Don't. Whether your bonus is based on your own performance or that of your company, that payment is precarious by nature. If you create a budget under the assumption that you'll have an extra $6,000 to help cover your expenses and your bonus only comes in at $4,000, you'll risk falling short. You should treat your bonus as extra money -- cash that's nice to have but not at all guaranteed.

4. Update as you go along

Perhaps your property taxes increased halfway through the year. Or maybe the cost of your monthly rail pass went up $30 overnight. While certain expenses may be set in stone, others can change, and sometimes without warning. That's why your budget needs to be a work-in-progress. If you start spending more in a certain category, go in and make adjustments to other categories so that you remain on track. At a minimum, pledge to review your budget once a quarter to make sure the numbers you have on there still apply.

5. Always include a line item for savings

Your budget needs a line item for every single thing you spend money on, from rent to groceries to the haircuts you get twice a year. But when you create your budget, don't forget to include the most important line item of them all: savings. Ideally, you should aim to put at least 10% of every paycheck into some sort of savings account, whether it's for emergencies, short-term goals like buying a house, or retirement. If your budget doesn't appear to have room for savings, it's time to evaluate your spending and start looking for ways to cut corners.

There's no question about it: Following a budget takes time, effort, and discipline. On the other hand, once you establish your budget and commit to following it, you'll have a much better grip on your finances, and that's something that will benefit you both now and in the future.

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