Budgeting – a word many may find restricting, but let’s look at it in a different way. Allocating your income into spending categories can be both freeing and gratifying. Following a budget and spending with intention leads to savings – and savings is what builds wealth.
Goals:
To truly make the most use out of your budget, it is important to first outline a major financial goal you would like to achieve through managing your money wisely. Do you have a child going off to college in a few years? Have you been eyeing a new property? Do you simply want to save fora vacation? Whatever your goal is, you will need to clearly define it for yourself before beginning your budgeting journey.
Budgets:
To meet financial objectives, your income should be higher than your expenses, and you should aim to have all of your income allocated somewhere by the end of each month.
Use the 50/20/30 division of your after-tax income as a starting point:
50% of your earnings goes to Needs:
- Housing
- Groceries
- Transportation
- Utilities
- Childcare
- Minimum debt payments (credit cards)
- Insurance premiums
- Health Care (premiums, co-pays, deductibles, prescriptions)
30% for Wants:
- Entertainment
- Dining out
- Clothes, dry cleaning
- Personal care (Gym memberships, salon/barber visits)
- Streaming services/Cable TV
20% to Savings:
- After-tax retirement contributions
- Cash Reserves (A general rule of thumb is to have 3-6 months of expenses covered by a cash reserve.)
- Credit card payments (Any amount paid above the minimum will help to reduce debt.)
Every month will look different in terms of allocation, and everyone will have different priorities. Aim to reduce your 30% of day-to-day expenses and reallocate to your cash reserves – after all, saving can build wealth!
Achieving your financial goals begins with budgeting and keeping yourself accountable. You may face new/different expenses monthly, or need to cover a large, unexpected expense. However, if you keep your goals in mind, divide your paycheck into tangible categories, and stay in tune with your budget, you can be on your way to success!
If you need any help or have questions about budgeting – ask our team!
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