Budgeting can seem overwhelming. Beyond organizing and record keeping, you have tough decisions to make and goals to establish. The reason for creating a budget is to control spending. It is important to learn how to spend less than you earn and concentrate on reaching your objectives.
Where do you start?
First, establish a baseline to budget from.
- Examine pay stubs to determine how much money you bring home each month.
- Track spending. Track all of your spending, ideally for a full month. This includes rent, mortgage payments, utilities, etc. as well as coffee, candy bars and movie tickets. Tracking is not the goal of budgeting, but accounting for every dime you spend for a short period of time, even a week, can be eye-opening. It can reveal spending habits that go unnoticed, and shows how spending small amounts of money can add up over time.
Try the 50/20/30 Budget
With your data in hand, establish three categories of spending
- Essentials: (housing, utilities, food and transportation)
- Financial Goals: saving and investing and debt-reduction payments (credit card or student loan debt)
- Lifestyle choices: entertaining, eating out, new clothes, vacation travel, etc.
Now divide your net monthly income among the three categories
- 50% Essentials
- 20% Financial goals
- 30% Lifestyle choices
Percentages for essentials and lifestyle choices are the maximum you should spend. Spending less in these categories will leave more money for other financial goals.
The purpose of a budget is to spend less than you earn. The best way to do this is to pay yourself first, rather than hoping there is something left over at the end of the month to sock away. Getting the money out of your hands and into savings first, you are less likely to spend it.
The 50/20/30 budget is flexible. You can bend it a bit by varying the percentages to make it work for you. All budgets are slightly different. The key is to get started and remain faithful to your budget every month.
The best time to take charge of your tomorrow is right now. The sooner you get a handle on saving and spending, the sooner you can start working toward the financial security you deserve.
How do I get started?
The first step in working toward your goals is finding the right advisor to help get you there. That’s why we offer no-obligation initial consultations. These meetings provide an opportunity for you to get to know the person who will be advising you, and just as importantly, for us to get to know you.