First time budget planning can be very overwhelming! There are several techniques you can use to help track household income and spending. Let’s take a look at a few illustrations that are super helpful and low stress ways of getting your finances in order.
Understanding your current financial situation is paramount. Be realistic about what you have coming in (income) versus what you have going out (spending). Start by calculating your after-tax income before deductions such as 401k and insurance withholdings. When you know that amount, calculate your expenses and savings by reviewing bank and credit card statements, utilities, food, and other household expenditures. If you are spending more than you are earning, you need to find a way to increase your income or make an effort to reduce spending.
Some general guidelines for a typical household are as follows:
Housing 25%
Food 10-15%
Insurance 10-15%
Transportation 10%
Entertainment 5-10%
Maintain Health 5-10%
Personal 5-10%
Savings 15-20%
Obviously, you need to make sure you are not going over 100% when you are using these guidelines. You may need to write out a budget using what you think the percentage is and then find adjustments that you need to make in order to accommodate any changing situations you may have.
If you have a significant debt load, you may also need to make adjustments. When raising a family, living as a single, or being an empty nester, you have different financial needs. This is also cause for adjustment. Budgeting is not necessarily a one size fits all type of activity.
Another technique that is a little broader is the 50/30/20 rule. Using this strategy 50% of your money is for absolute necessities including housing, transportation, food, utilities, insurance, payments on credit cards and child-care. The next 30% is for wants such as travel, entertainment, eating out and gifts. The remaining 20% is tagged for saving, investing and debt pay off (in excess of minimum payments).
This is a simpler technique if you are just starting to budget or you have a low income. If you have a high income this may cause your discretionary spending to become higher than needed.
It’s never too late to get started on a budget! Creating a budget that you will stick to can actually help ease anxiety. It can also lead to better trust and communication with your partner if you are married and experiencing budgeting as a team.
Here are some expert tips to help you become a pro at budgeting:
1. Keep it simple...this is the best way to keep from getting overwhelmed.
2. Base your budget off your income...if you get paid every week, create a weekly budget; every two weeks, a bi-weekly budget; monthly, a monthly budget.
3. Set goals...if you are trying to save, or just pay off loans or your home, you will need to hold yourself accountable as you work towards getting there. If you get off track try to figure out what spending habits you need to change in order to be successful.
4. Avoid spending situations...do you really need to go out to dinner, get a pedicure, or buy a new outfit? Until you are meeting your budgeting goals, the answer to all of these questions is probably no. Once you have figured out how much you can save by addressing the difference between a want and a need you will feel the satisfaction of having self control. At this point you should be able to loosen up a little and treat yourself.
5. For married couples...Work as a team! Your finances and goal setting are not your burden alone. Having a mutual understanding of what your financial goals are can help increase the intimacy in your marriage. This goal setting is not just about finances, but it is about all things in life. Since there is a union between husband and wife it is essential that couples combine bank accounts and all other financial items.
6. Seek outside help...such as a friend, counselor, or banking professional for guidance if you are having any problems organizing your budget. There are many resources available free of charge and judgement. Don’t let what seems like a insurmountable problem to you keep you from reaching out for help!
If you are in need of more help with your finances and budgeting, reach out to the staff at the PLC Health Clinic for more details on the classes and guidance we have to offer.
*references available upon request
