Hey Guys! Let’s settle right in to learning about budgeting, or as l like to call it, my savings plan. First thing first, you need to remember how important it is to live within your means aka don’t spend more than you make!
A common ratio passed around is 50|30|20. 50% for needs, 30% for wants, and 20% for savings. That is ratio is a good thing to keep in mind, but you might not be able to hit those targets right away and that is ok! One step at a time and we will all make it there.
Creating A Budget:
Step 1. Determine how much your take home pay is each month, simply add up your monthly income from all sources. (Make sure you are factoring taxes and other allocations if they are not already accounted for.)
Step 2. Cover your most basic needs. Food, housing, utilities, and transportation must come first. These are the fundamentals to what you and your family need to survive.
Step 3. If you have debt, make sure you are allotting money to pay at least the monthly minimums.
Step 4. Save for your future. It is recommended that you save 10% of your income for the future. If you don’t have an emergency fund of at least $1000, start there before you jump into paying down your debt and starting long-term investing.
Step 5. Enjoy life! This category catches everything that is not an absolute necessity. Such as eating out, cable TV, trips to the zoo, just sprucing up your way of life. These fun things can be important to maintain a happy and healthy lifestyle so try to balance your needs and wants.
Step 6. Track your money!
Some of these expenses will be static or a fixed expense. Your rent, mortgage, or other loans should stay the same every month. But your groceries or water bill might fluctuate or vary from month to month. That is why it is so important to track your spending and have the emergency fund to cover any unexpected spikes in your budget needs.
What Happens If You Don’t Have Enough Money To Make Ends Meet?
If you are struggling to cover all your expenses or find that you don’t any money left to save for a rainy day, you are not alone. A study conducted by Career Builders found that 51% of people making less than $50,000 are living paycheck to paycheck. So, what can you do?
The first thing to do is to look at your spending habits. Is there an area where you can easily cut back? For some people that can mean cutting back on eating out or online shopping. For others it can mean giving up Cable TV or missing a few nights out on the town. If cutting back on your spending is not enough, you might need to consider more direct options.
Career Builder’s study also found that some people would refuse to give up certain “wants” no matter how much they were struggling to make ends meet. The top items were: Internet (54%), Phone (53%), Driving (48%), and Cable (21%). But what if you took the bus to work once a week and only ate out twice a month for the next three years and you could pay off your debt? Finding your plan is a fluid process of giving and taking.
One of the biggest monthly costs is housing. You might need to consider downsizing for a few years or refinancing your home loan. If you have a car loan, you might consider trading it in for a cheaper vehicle you can own outright or owe less on monthly payments. Another option is to look at ways you can increase your monthly income. Overall, this is not going to be an easy process, but it will pay off in the long run. It is going to take lots of hard work and determination month after month.
What Are Some Ways To Help You Budget?
The method that I personally use is having separate accounts designated within my bank account. I have 4 set up, one for my emergency fund, one for long term savings, one for housing expenses and, one for the fun stuff. I do this all manually after each payday but, some companies allow for more than one direct deposit to occur with portions of your paycheck. You can set it up automatically that 10% of your income goes directly into a different account and so on.
Another method that works well for cash is the envelope system. You split your cash into separate envelopes for your specific expenses. This is a good way to handle money if you struggle with splurge shopping or saving money for birthdays and Christmas. You can just tuck away $5 or $10 a month.
When it comes to grocery shopping, plan it out ahead of time. Make a list before hand and don’t go shopping if you are hungry! You will just end up buying more unnecessary snacks and treats. You might even consider grocery pick up so you can control what you buy without even being tempted in the store.
Why Do You Need To Re-evaluate Your Budget / Savings Plan?
Budgeting isn’t about saving hundreds or thousands of dollars a month. It is a fluid process that should take into account your wants and needs. Your spending and expenses can change from month to month and most companies will do an annual merit increase every year. Some might give out bonuses around the holidays or you might have a side gig or be seasonally employed. All of these different things come in to play when you are planning out your budget for the long haul.
You can track your process week by week or month by moth to make sure that you are staying on track for your long-term goals. You can also use that to plan for budget for the next month or year. I recommend using a spreadsheet or creating a money binder to keep your monthly budgets organized. Remember, even saving $25 dollars a month is a great place to start. When trying to identify ways to cut spending, evaluate the immediate reward verse the long term pay off.
Resources –
Career Builder, Press Release 8/24/2017. Living Paycheck to Paycheck is a Way of Life for Majority of U.S. Workers, According to New CareerBuilder Survey.
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