Prepping for a new baby’s arrival might kick your nesting instinct into high gear, as you make sure everything is just right before the big day. One thing to add to your new-baby to-do list is figuring out how to financially prepare for maternity leave if you’ll be taking time away from work.
Lauren Mochizuki, a nurse and budgeting expert at personal finance blog Casa Mochi, took time off from work for the births of both her children. Because she had only partial paid leave each time, she says a budget was critical in making sure money wasn’t a source of stress.
“The purpose of budgeting for maternity leave is to have enough money saved to replace your income for your desired leave time,” Mochizuki says.
But the question “How do I budget for maternity leave?” is a big one. One thing’s for sureâthe answer will be different for everyone, since not everyone’s leave or financial situation is the same. What matters most is taking action early to get a grip on your finances while there’s still time to plan.
Before you get caught up in the new-baby glow, here’s what you need to do to financially prepare for maternity leave:
1. Estimate how long you’ll need your maternity budget to last
To financially prepare for maternity leave, you need to know how long you plan to be away from work without pay.
The Family and Medical Leave Act (FMLA) allows eligible employees up to 12 weeks of job-protected, unpaid leave from work per year for certain family and medical reasons, including for the birth of a child. Some employers may also offer a period of paid leave for new parents.
When estimating how long you’ll need your maternity budget to last, Mochizuki says to consider how much unpaid leave you plan to take based on your personal needs and budget. For example, you could find you’re not able to take the full period offered by FMLA after reviewing your expenses (more on that below) and how much you have in savings.
Even if your employer does offer paid maternity leave, you may decide to extend your time at home by supplementing your paid leave with unpaid time off, Mochizuki says.
Keep in mind that despite all of your budgeting for maternity leave, your health and the health of your baby may also influence how much unpaid time off you take and how long your maternity leave budget needs to stretch.
As you’re financially preparing for maternity leave, make sure your spouse or partner is also considering what benefits may be available to them through their employer. Together you should know what benefits are available for maternity or paternity leave, either paid or unpaid, and how to apply for them as you jointly navigate the budgeting for maternity leave process. You can then decide how to coordinate the amount of time each of you should take and when that leave should begin.
Contact your HR department to learn about your company’s maternity leave policy, how to apply for leave and whether there are any conditions you need to meet to qualify for leave. Ask if you’re able to leverage sick days, vacation days or short-term disability for paid maternity leave.
2. Babyproof your budget
When budgeting for maternity leave, make sure you review your current monthly budget to assess how budgeting for a new baby fits in.
In Mochizuki’s case, she and her husband added a category to save for maternity leave within their existing budget for household expenses (e.g., mortgage, utilities, groceries).
“We treated it as another emergency fund, meaning we had a goal of how much we wanted to save and we kept working and saving until we reached that goal,” Mochizuki says.
As you financially prepare for maternity leave, consider the following questions:
What new expenses need to be added to your budget? Diapers, for instance, can cost a family around $900 per year, according to the National Diaper Bank Network. You may also be spending money on formula, bottles, wipes, clothes and toys for your new one, all of which can increase your monthly budget. And don’t forget the cost of any new products or items that mom will need along the way. Running the numbers with a first-year baby costs calculator can help you accurately estimate your new expenses and help with financial planning for new parents.
Will any of your current spending be reduced while you’re on leave? As you think about the new expenses you’ll need to add when budgeting for maternity leave, don’t forget the ones you may be able to nix. For example, your budget may dip when it comes to commuting costs if you’re not driving or using public transit to get to work every day. If you have room in your budget for meals out or entertainment expenses, those may naturally be cut if you’re eating at home more often and taking it easy with the little one.
3. Tighten up the budgetâthen tighten some more
Once you’ve evaluated your budget, consider whether you can streamline it further as you financially prepare for maternity leave. This can help ease any loss of income associated with taking time off or counter the new expenses you’ve added to your maternity leave budget.
Becky Beach, founder of Mom Beach, a personal finance blog for moms, says that to make her maternity leave budget workâwhich included three months of unpaid leaveâshe and her husband got serious about reducing unnecessary expenses.
Cut existing costs
As you budget for maternity leave, go through your existing budget by each spending category.
“The best tip is to cut costs on things you don’t need, like subscriptions, movie streaming services, new clothes, eating out, date nights, etc.,” Beach says. “That money should be earmarked for your new baby’s food, clothes and diapers.”
Cutting out those discretionary “wants” is an obvious choice, but look more closely at other ways you could save. For example, could you negotiate a better deal on your car insurance or homeowner’s insurance? Can you better plan and prep for meals to save money on food costs? How about reducing your internet service package or refinancing your debt?
Find ways to earn
Something else to consider as you budget for maternity leave is how you could add income back into your budget if all or part of your leave is unpaid and you want to try and close some of the income gap. For example, before your maternity leave starts, you could turn selling unwanted household items into a side hustle you can do while working full time to bring in some extra cash and declutter before baby arrives.
Reduce new costs
As you save for maternity leave, also think about how you could reduce expenses associated with welcoming a new baby. Rather than buying brand-new furniture or clothing, for example, you could buy those things gently used from consignment shops, friends or relatives and online marketplaces. If someone is planning to throw a baby shower on your behalf, you could create a specific wish list of items you’d prefer to receive as gifts in order to offset costs.
4. Set a savings goal and give every dollar a purpose
When Beach and her husband saved for maternity leave, they set out to save $20,000 prior to their baby’s birth. They cut their spending, used coupons and lived frugally to make it happen.
In Beach’s case, they chose $20,000 since that’s what she would have earned over her three-month maternity leave, had she been working. You might use a similar guideline to choose a savings goal. If you’re receiving paid leave, you may strive to save enough to cover your new expenses.
As you make your plan to save for maternity leave, make sure to account for your loss of income and the new expenses in your maternity leave budget. Don’t forget to factor in any savings you already have set aside and plan to use to help you financially prepare for maternity leave.
Once you’ve come up with your savings target, consider dividing your maternity savings into different buckets, or categories, to help ensure the funds last as long as you need them to. This could also make it harder to overspend in any one category.
For instance, when saving for maternity leave, you may leverage buckets like:
Planned baby expenses
Unexpected baby costs or emergencies
Mother and baby healthcare
“The purpose of budgeting for maternity leave is to have enough money saved to replace your income for your desired leave time.”
Budgeting for maternity leaveâand beyond
Once maternity leave ends, your budget will evolve again as your income changes and new baby-related expenses are introduced. As you prepare to go back to work, review your budget again and factor in any new costs. For example, in-home childcare or daycare may be something you have to account for, along with ongoing healthcare costs for new-baby checkups.
Then, schedule a regular date going forward to review your budget and expenses as your baby grows. You can do this once at the beginning or end of the month or every payday. Take a look at your income and expenses to see what has increased or decreased and what adjustments, if any, you need to make to keep your budget running smoothly.
Budgeting for maternity leave takes a little time and planning, but it’s well worth the effort. Knowing that your finances are in order lets you relax and enjoy making memoriesâinstead of stressing over money.
The post What You Need to Know About Budgeting for Maternity Leave appeared first on Discover Bank – Banking Topics Blog.
2020 has shaped all of us in some way or another financially. Whether it is being reminded of the importance of living within our means or saving for a rainy day, these positive financial habits and lessons are timeless and ones we can take into the new year.Â
While everyone is on a very unique financial journey, we can still learn from each other. As we wrap up this year, it’s important to reflect on some of these positive financial habits and lessons and take the ones we need into 2021. Here are some of the top financial lessons:
Living Within Your Means
Itâs been said for years, centuries even, that one should live within one’s means. Well, I think a lot of people were reminded of this financial principle given the year weâve had. Living within your means is another way of saying donât spend more than you earn. I would take it one step further to say, set up your financial budget so you pay yourself first. Then only spend what is leftover on all the fun or variable items.
Setting up your budget in the Mint app or updating your budget in Mint to reflect the changes in your income or expenses is a great activity to do before the year ends. Follow the 50/20/30Â rule of thumb and ask yourself these questions:
Are you spending more than you earn?
Are there fixed bills you can reduce so you can save more for your financial goals?Â
Can you reduce your variable spending and save that money instead?
The idea is to find a balance that allows you to pay for your fixed bills, save automatically every month and then only spend what is left over. If you donât have the money, then you cannot use debt to buy something. This is a great way to get back in touch with reality and also appreciate your money more.Â
Have a Cash Cushion
Having a cash cushion gives you peace of mind since you know that if anything unexpected comes up, which of course always happens in life, you have money that is easy to liquidate to pay for it versus paying it with debt or taking from long-term investments. Having an adequate cash cushion this year offered some people a huge sigh of relief when they lost their job or perhaps had reduced income for a few months. With a cash cushion or rainy day fund, they were still able to cover their bills with their savings.
Many people are making it their 2021 goal to build, replenish, or maintain their cash cushion.Â Typically, you want a cash cushion of about 3- 6 months of your core expenses. Your cash cushion is usually held in a high-yield saving account that you can access immediately if needed. However, you want to think of it almost as out of sight out of mind so it’s really there for bigger emergencies or opportunities that come up.
Having the right asset allocation and understanding your risk tolerance and timeframe of your investments is always important. With a lot of uncertainty and volatility in the stock market this year, more and more people are paying attention to their portfolio allocation and learning what that really means when it comes to risk and returns. Learning more about which investments you actually hold within your 401(k) or IRA is always important. I think the lesson this year reminded everybody that itâs your money and it’s up to you to know.
Even if you have an investment manager helping you, you still need to understand how your portfolio is allocated and what that means in terms of risk and what you can expect in portfolio volatility (ups and downs) versus the overall stock market. A lot of people watch the news and hear the stock market is going up or down, but fail to realize that may not be how your portfolio is actually performing. So get clear. Make sure that your portfolio matches your long term goal of retirement and risk tolerance and donât make any irrational short term decisions with your long-term money based on the stock market volatility or what the news and media are showcasing.
Right Insurance Coverage
We have all been reminded of the importance of health this year. Our own health and the health of our loved ones should be a top priority. It’s also an extremely important part of financial success over time. It is said, insurance is the glue that can hold everything together in your financial life if something catastrophic happens. Insurances such as health, auto, home, disability, life, long-term care, business, etc. are really important but having the right insurance policy and coverage in place for each is the most important part.
Take time and review all the insurance coverage you have and make sure it is up to date and still accurate given your life circumstances and wishes. Sometimes you may have a life insurance policy in place for years but fail to realize there is now a better product in the marketplace with more coverage or better terms. With any insurance, it is wise to never cancel a policy before you a full review and new policy to replace it already in place. The last thing you want is to be uninsured. Make sure you also have an adequate estate plan whether itâs a trust or will that showcases your wishes very clearly. This way, you can communicate that with your trust/will executorâs, beneficiaries, family members, etc. so they are clear on everything as well.Â
Financial lessons will always be there. Year after year, life throws us challenges and successes to remind us of what is most important. Take time, reflect, and get a game plan in place for 2021 that takes everything you have learned up until now into account. This will help you set the tone for an abundant and thriving new financial year.Â
The post Financial Lessons Learned During the Pandemic appeared first on MintLife Blog.
These days, it can take a long time to pay off a car loan. On average, car loans come with terms lasting for more than five years. Paying down a car loan isnât that different from paying down a mortgage. In both cases, a large percentage of your initial payments go toward paying interest. If you donât understand why, you might need a crash course on a concept called amortization.
Find out now: How much house can I afford?
Car Loan Amortization: The Basics
Amortization is just a fancy way of saying that youâre in the process of paying back the money you borrowed from your lender. In order to do that, youâre required to make a payment every month by a certain due date. With each payment, your money is split between paying off interest and paying off your principal balance (or the amount that your lender agreed to lend you).
What youâll soon discover is that your car payments â at least in the beginning â cover quite a bit of interest. Thatâs how amortization works. Over time, your lender will use a greater share of your car payments to reduce your principal loan balance (and a smaller percentage to pay for interest) until youâve completely paid off the vehicle you purchased.
Not all loans amortize. For example, applying for a credit card is akin to applying for a loan. While your credit card statement will include a minimum payment amount, thereâs no date set in advance for when that credit card debt has to be paid off.
With amortizing loans â like car loans and home loans â youâre expected to make payments on a regular basis according to something called an amortization schedule. Your lender determines in advance when your loan must be paid off, whether thatâs in five years or 30 years.
The Interest on Your Car Loan
Now letâs talk about interest. Youâre not going to be able to borrow money to finance a car purchase without paying a fee (interest). But thereâs a key difference between simple interest and compound interest.
When it comes to taking out a loan, simple interest is the amount of money thatâs charged on top of your principal. Compound interest, however, accounts for the fee that accrues on top of your principal balance and on any unpaid interest.
Related Article: How to Make Your First Car Purchase Happen
As of April 2016, 60-month new car loans have rates that are just above 3%, on average. Rates for used cars with 36-month terms are closer to 4%.
The majority of car loans have simple interest rates. As a borrower, thatâs good news. If your interest doesnât compound, you wonât have to turn as much money over to your lender. And the sooner you pay off your car loan, the less interest youâll pay overall. You can also speed up the process of eliminating your debt by making extra car payments (if thatâs affordable) and refinancing to a shorter loan term.
Car Loan Amortization Schedules
An amortization schedule is a table that specifies just how much of each loan payment will cover the interest owed and how much will cover the principal balance. If you agreed to pay back the money you borrowed to buy a car in five years, your auto loan amortization schedule will include all 60 payments that youâll need to make. Beside each payment, youâll likely see the total amount of paid interest and whatâs left of your car loanâs principal balance.
While the ratio of whatâs applied towards interest versus the principal will change as your final payment deadline draws nearer, your car payments will probably stay the same from month to month. To view your amortization schedule, you can use an online calculator thatâll do the math for you. But if youâre feeling ambitious, you can easily make an auto loan amortization schedule by creating an Excel spreadsheet.
To determine the percentage of your initial car payment thatâll pay for your interest, just multiply the principal balance by the periodic interest rate (your annual interest rate divided by 12). Then youâll calculate whatâs going toward the principal by subtracting the interest amount from the total payment amount.
For example, if you have a $25,000 five-year car loan with an annual interest rate of 3%, your first payment might be $449. Out of that payment, youâll pay $62.50 in interest and reduce your principal balance by $386.50 ($449 â $62.50). Now you only have a remaining balance of $24,613.50 to pay off, and you can continue your calculations until you get to the point where you donât owe your lender anything.
Related Article: The Best Cities for Electric Cars
Auto loan amortization isnât nearly as complicated as it might sound. It requires car owners to make regular payments until their loans are paid off. Since lenders arenât required to hand out auto amortization schedules, it might be a good idea to ask for one or use a calculator before taking out a loan. That way, youâll know how your lender will break down your payments.
Update: Have more financial questions? SmartAsset can help. So many people reached out to us looking for tax and long-term financial planning help, we started our own matching service to help you find a financial advisor. The SmartAdvisor matching tool can help you find a person to work with to meet your needs. First youâll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.
Those who are fortunate enough to still be collecting a paycheck while quarantined or sheltering in place might expect to build up some serious savings. While you work from home, you’re avoiding your usual commuting expenses, and you’re probably saving money by not going to bars, restaurants, and movies, or skipping that vacation to Fiji.
But as spending decreases in some areas during self-isolation, it can creep up in others. To brace yourself and your budget, keep an eye on these expenses while youâre self-isolating at home.
If youâve gone from office life to Zoom life, youâre spending more time at home than usual, which could ramp up your household expenses.
âYour utility spending might be considerably higher if you’re spending more time at home cooking, charging devices, using lights and appliances,â says Ted Rossman, industry analyst at CreditCards.com.
To keep your utility bills down, turn off lights when you leave the room, open windows during the day to let in cool air, unplug devices that youâre not using, and consider turning down your water heater by a few degrees.
Even if youâre not hoarding (and you shouldnât be), you might find yourself spending more on groceries while you shelter in place.
For some people, an uptick in grocery spending will be offset by the money saved from not dining at restaurants. But if your local store is picked overâor if you pay fees for grocery deliveryâyou could spend more on groceries than usual.
âIâve been to a local grocery store, and the only thing that was available was organic, so I couldnât buy the generic. I actually had to spend more money,â says Steve Repak, author of the â6 Week Money Challenge for Your Personal Finances.â
If your grocery spending feels out of hand, be flexible and creative with your menu. Cook the food you already have at home before you head back to the store. Sites such as Eater have compiled resources for home cooks, including Pantry Cooking 101 and How to Stock a Pantry.
If youâre using a delivery service, place infrequent, larger orders instead of several small orders. Or consider curbside service; many stores are allowing free pickups where they bring your groceries right to your car, so you can save on delivery fees and tips.
3. Meal delivery and takeout
You may not be able to enjoy a nice meal at a restaurant, but you can order takeout and deliveryâand those indulgences can add up quickly. After all, itâs not just the meal youâre paying for.
âThereâs probably still a service fee, and on top of that you have to leave a gratuity,â Repak says. (It’s also a good idea to generously tip the workers who are delivering your food in these times.)
If youâre on a budget, reserve takeout and delivery for special occasions or those days when you just canât muster the motivation to cook.
4. Alcohol and other sources of comfort
If you find yourself decompressing with a glass or two (or three) of wine every night, your drinking habit could do a number on your budget. And you wouldn’t be aloneâalcohol consumption has shot up nationwide, and in states where recreational marijuana is legal, dispensaries are reporting booming business.
âSocial isolation is really strongly linked to physical and mental health problems, and the way we cope with a lot of them is by drinking more,â Repak says. âPeople are going to smoke more and drink more … and we need to find other healthier coping mechanisms to offset that additional spending.â
You may not want to totally forfeit your evening glass of pinot, but you can make your supply last longer by sipping a mug of (far more affordable) chamomile tea on occasion, or opting for a calming yoga video or breathing exercise.
Watch: Our Chief Economist’s View on the Pandemic, Mortgage Rates, and What’s Ahead
Youâve rewatched all your favorite shows on Netflix and Huluâso, now’s the time to add a Disney+ subscription, right?
Not so fast, Repak says.
âSave a little bit of money by just picking one of the streaming services,â he suggests, or at least donât pile on new subscriptions to the ones you already have.
To free up your budget, take inventory of your other monthly subscriptions, services, and other recurring expenses, and see if there’s anything that can be eliminated.
âTen dollars a month may not sound like a lot, but if you have five of those, that’s $600 annually,â Rossman adds.
6. Online shopping
If you turn to retail therapy to soothe your soul, your budget could take a hit. True, many retailers are offering deep discounts in order to move merchandise, but even discount purchases add up.
âImpulse buying is a potential trap,â Rossman says. âSome people fall victim to it more than others.â
Instead of clicking âadd to cartâ as a coping mechanism, Repak suggests cleaning out your closet instead.
âThis is a great time that we can offset our budget by decluttering our house or apartment,â he says.
Use sites like Poshmark to sell your clothes, or Mercari for your household items. Many donation centers such as Goodwill are still accepting donations, tooâjust call ahead to make sure your local store or donation drop-off location will take your items.
7. New hobbies you’re trying in quarantine
Our spending habits are highly personal, and you might find yourself throwing money at a new habit or hobby to fight cabin fever.
âItâs a worthwhile exercise to track your spending, especially now that so much is different,â Rossman says. âLook through your credit card and bank statements from the past month. Do you see anything surprising? Are there areas where you spent extra but didn’t feel it was worth it? These could be good ways to cut back.â
And remember: Even if quarantine has eliminated some of your old day-to-day expenses, itâs easy to overestimate how much youâre saving.
âMost people don’t have a great handle on their budget and spending habits anyway, and so much has changed of late,â Rossman says. âIt’s easy to overlook things.â
The post Watch Your Wallet: 7 Hidden Costs of Self-Isolating at Home During Coronavirus appeared first on Real Estate News & Insights | realtor.comÂ®.
With so many of us dealing with the coronavirus pandemic (plus the financial fallout from it) and spending more time at home this year, thereâs a very good chance your family budget looks different. Our own budget had some big adjustments (transportation costs went down to basically nothing) along with some minor changes (buying supplies and items around the house for projects).
Our money dates have had us reevaluate some things and redirect money to other expenses and savings. Besides making sure that youâre taking care of essential expenses and building up your financial cushion, you want to want to make sure you include another key area in your budget – some guilt-free spending in there as well.
Why Budgets Need to Include Some Guilt-Free Spending
First off what exactly is guilt-free spending? And why should families include it when planning out their budget. Basically, it covers the expenses that you enjoy. Every family has different ways they use that money. It could be travel, eating out together, adding another pair of shoes to your collection, or gadgets. With families having to deal with so many decisions and challenges, there has been an increasing awareness of having proper self-care as part of the routine. Families are now including that in their budgets.
The key part of keeping these expenses guilt-free is that they bring you joy without breaking the bank. These arenât frivolous spending sprees. They can be meaningful purchases such as supplies for a hobby like painting that enriches your life. Second, these expenses are planned ahead of time and baked into your budget so youâre not taking on debt or upsetting your familyâs cash flow.
Why Budgets Typically Fail
One of the reasons why I think having some fun money in your budget is a wise move is because itâll help make your budget more sustainable. How? If I asked you what the point of a budget is, what would you say? Most tell me itâs to keep their spending in check.
It makes sense to believe that because for most families thatâs what itâs about – restrictions. However, the best budgets Iâve seen are geared towards the direction of the money. Iâve interviewed families who have retired early or have knocked out a ton of debt and something they had in common was that their budgets reflected their priorities and circumstances.
Before they put pen to paper (or tap the app), they sat down and defined what goals they wanted to achieve. If you had to break down a budget the three key areas are basically:
Paying your essential bills.
Building long term financial stability.
Have the money you can use now to enjoy.
Many times, the disagreements, arguments, and sometimes sabotage with budgets come from friction on finding a balance between spending money with long term stability and enjoying now. If you skew too much to saving up for the future, one or more of you in the family could start getting resentful. Financial infidelity or set back with keeping the budget can occur for many reasons, but some spouses say one reason is thereâs absolutely no wiggle room in the budget for fun. If youâre only focused on the now when something comes up – hello 2020! – youâre left without a safety net.
For families with kids, thatâs an additional source of stress they donât need.Â I noticed that the families who hit their goals had found a way to balance things. They save towards their long term goals as well as set aside money to enjoy now. How? By redoing how they approached their budgets.
Easy Budget Framework to Use
Letâs go back to those three key goals of any budget – taking care of essentials, saving for the future, and spending on the present. Families looking to include all of these goals need a budget that can weave them together. If youâre just starting out with a budget and are still trying to figure out a framework, an easy foundational budget is the 50/20/30 budget. It divides up your money into those three key goals, with 50% going to necessary expenses, 20% towards financial stability and wealth, and 30% towards discretionary or fun money.
Feel free to adjust the percentages based on your circumstances, but for many families that three-bucket approach is easy enough to set up and it gives them enough wiggle room where there can enjoy some of their money now. Once youâve created that budget, you can then take the next step – automating your money. Weâve done this for over a decade and it has been incredibly helpful. We have our bills automated every paycheck plus our savings and investments are scheduled monthly. With those necessary things taken care of first, we know whatever spending we do wonât harm our expenses.
Staying on Top of Your and Budget – The Easy Way
Now that you have a budget and youâre including some guilt-free spending, how do you make sure youâre staying on track? There are some wonderful options out there including money apps like Mint. You can stay on top of your money without losing your mind because the apps can pull that data from your accounts and give you an easy and clear way to see where your money is going. You can also use Mint to track your goals like paying down debt or saving up for a house. With that information in front of you can quickly and easily see how youâre doing anytime.
Another handy tool with Mint is how simple it is to set up alerts on certain spending. So if you have set aside $200 for your âfunâ account, Mint can notify you when your spending is getting close to your limit. Itâs a more proactive and real-time way to manage your money without having to worry about every single penny.
Your Take on Budgets
As you can see, with a little planning you can be financially savvy and enjoy some fun now. Iâd love to get your thoughts – how do you approach your budget? What are some must-have expenses in yours?
The post How to Include Some Guilt-Free Spending in Your Budget appeared first on MintLife Blog.
Maybe you want to lose those stubborn 10 pounds, score a big promotion or run your first marathon. Whatever your priority, it all starts with setting a goal.
Financial priorities are no different. Whether you want to save for your child’s college education or get yourself out of debt, budgeting to help reach your financial goals allows you to determine what’s most important to you, make a plan to attain those goals and hold yourself accountable for success.
Still, when it comes to managing your money, knowing how to set financial goals and sticking to them can feel like opposite sides of the same coin. You might even find yourself asking, “How do I create a simple budget to reach my financial goals?” If you follow these three steps, you could be crossing the finish line in record time:
1. Pick a day to get started
Sometimes the hardest part of tackling a new project is simply getting started, especially if your to-do list feels like it’s never ending. There’s always tomorrow, or the day after that… right? To create a simple budget to help you reach your financial goals, pick a day and time to get started. Consider picking a time when you do your best thinking, are most focused and least likely to get interrupted. Maybe it’s Sunday morning over breakfast and coffee before kicking off a day of chores or on a weeknight after the kids go to bed.
Once you’ve landed on the best time to sit down and create a simple budget, add it to the calendar and schedule reminders on your computer or phone to hold yourself accountable.
2. Create a simple budget, however complex your finances
Chances are your finances are pretty complicated, with lots of moving parts. Things seem to be moving along nicely with your regular expenses like rent, groceries, transportation and entertainment… and then your carburetor goes kaput in your car and you must replace it right away. Or that toothache has become unbearable and requires a root canalâand you’ll have to cover some of the expense out of pocket. Just when you’re finally making a dent in paying down your debt and getting your finances on track, life throws you some curveballs. But that doesn’t mean you can’t create a simple budget.
One of the easiest ways to create a simple budget and stay on track is to follow the 50-20-30 rule:
50 percent of your income should address your needs, such as housing, utilities, healthcare and transportation;
20 percent should be put toward your financial goals, like building your savings and paying off debt;
30 percent should cover your wants or discretionary expenses, like shopping, entertainment and dining out.
Managing your finances with the 50-20-30 is a good first step when you’re first learning how to create a budget, but trying to deal with multiple financial goals within that 20 percent bucket can be overwhelming. When it comes to budgeting to help reach your financial goals, certified financial planner Jim White suggests taking your financial goals one step at a time.
“Make a simple plan to tackle debtâor maybe just one debtâthen when that goal is accomplished, work on a simple plan for the next debt,” White suggests. “A bunch of small victories goes a long way to changing your financial discipline and gives you a boost to keep moving forward,” White adds.
Similar to how you picked a day to begin the budgeting process, make a habit out of managing your finances by picking one day of the week and checking in with yourself at a scheduled time. After about two months, budgeting to help reach your financial goals can become habit forming. “When you focus on your goals on the same day every week, you are creating a habit, and a pattern, to follow,” says Karen Ford, financial coach and motivational speaker.
Budgeting to help reach your financial goals becomes even more effective when you’re reviewing your priorities every seven days and making adjustments to your spending and saving as needed.
“Make a simple plan to tackle debtâor maybe just one debtâthen when that goal is accomplished, work on a simple plan for the next debt. A bunch of small victories goes a long way to changing your financial discipline and gives you a boost to keep moving forward.”
3. Automate your financial plan
Now that you know how to set financial goalsâwhether it’s paying down debt, saving up for a car or putting money away for retirementâwhat’s next? Time to get moving! One way to do that is to automate your finances. By setting up automatic bill pay and account transfers, it will be easier to stick to your plan for paying monthly expenses and contributing to savings.
When it comes to paying your bills and learning how to set financial goals, consider automating the bills that you pay regularly, especially those that fall within the 50 percent budget category that covers your living essentials. To gain momentum with your savings progress, set up automatic transfers from your checking account to your savings account for the amount you wish to save each month. If your financial goal is retirement, you could even set up automatic transfers to an individual retirement account (IRA) so you’re consistently making progress. You could also arrange to have a portion of your paycheck automatically go into savingsâbefore you even have time to miss it.
By making automatic contributions to your savings accounts, you are “subscribing to the idea of paying yourself first,” says Riley Adams, CPA and blogger for Young and the Invested, a professional’s guide to financial independence. “By doing this, it removes the temptation to spend and takes any lack of discipline out of the picture,” Adams says.
Keep in mind that any time you automate your finances as part of creating a simple budget, you should monitor your accounts regularly. Check in to make sure your automated settings are up to date, that you always have the funds available in your accounts to cover your expenses and transfers and that your savings are growing according to your plan.
How to set financial goals in 3 steps
Once you find time to focus on your finances, create a simple budget and automate your payments and transfers, budgeting to help reach your financial goals is one habit that is sure to stick. By following these three rules and keeping yourself on track, you’ll be ready to build a solid foundation for your financial future.
The post How to Set Financial Goalsâand Crush Them appeared first on Discover Bank – Banking Topics Blog.
The number of Americans driving to work alone is on the rise, according to data from the U.S. Census Bureau. With the increase in drivers comes traffic, which means more time and money spent idling in cars. Some cities are better equipped to deal with the mass of drivers, managing to keep traffic delays and congestion to a minimum. Other cities are equipped with walkable streets and reliable mass transit options, making car ownership less necessary.
Check out mortgage rates in your area.
We considered these and other factors to find the worst cities to own a car. Specifically, we looked at hours spent in traffic per year for the average driver, the annual cost of traffic for the average driver, the rate of motor vehicle theft, the number of repair shops and parking garages per driver, the commuter stress index and the non-driving options a resident has for getting around. To understand where we got our data and how we put it together to create our final ranking, see the data and methodology section below.
Cities on the coasts â The entire top 10 is comprised of cities on or close to the coasts. This makes sense as many of the largest cities in the country are located on the coasts. Plus, on the East Coast in particular, these cities tend to be older which means they were not built to handle car traffic.
Grin and bear it â Traffic can get pretty bad. However, in some cities getting around by car is just about the only option you have if you want to leave your house. Thus some cities with really bad traffic like Los Angeles or Long Beach didnât quite crack the top 10.
1. Newark, New Jersey
Brick City tops our ranking of the worst cities to own a car. Whatâs tough about being a car owner in Newark is the traffic. Itâs part of the New York City metro area which has 19 million people, 5 million of whom drive to work. Newark is stuck right in the middle of this bumper-to-bumper traffic. Plus, if youâre a car owner in Newark, the risk of having your car stolen is much higher than it is in other cities. Newark ranks eighth in the country for motor vehicle thefts per 1,000 residents.
Related Article: The States With the Worst Drivers
2. San Francisco, California
The City in the Bay grabs the second spot for worst places to own a car. Being stuck in traffic costs the average commuter in San Francisco $1,600 per year. That cost includes both the value of the time spent in traffic and the cost of gas. SF is also one of the 10 worst cities for motor vehicle thefts per resident, another reason to forgo car ownership.
3. Washington, D.C.
The District and the surrounding metro area sees some of the worst traffic in the country. The average D.C. commuter spends 82 hours per year in traffic. Depending on how you slice it, thatâs either two working weeks or almost three-and-a-half days of doing nothing but shaking your fist at your fellow drivers. That traffic is equal to an annual cost of $1,834 per commuter.
4. Oakland, California
One argument against car ownership in Oakland is the crime. There were almost 6,400 motor vehicle thefts in the city of Oakland or 15 auto thefts per 1,000 residents. Thatâs the highest rate in the country. The average Oakland driver can also expect to spend 78 hours per year in traffic. On the plus side, if something goes wrong with your wheels in Oakland, it shouldnât be too difficult to get it fixed. There are more than six repair shops per 10,000 drivers in Oakland â the highest rate in the top 10.
5. Arlington, Virginia
As previously mentioned, the Washington, D.C. metro area has the worst traffic in the country. Unfortunately for the residents of Arlington, they are a part of that metro area. They face the same brutal 82 hours per year spent in traffic, on average. It costs Arlington residents $1,834 per year, on average, waiting in that traffic. For residents of Arlington, a car is more of a necessity than it is for people living in D.C., which is why it ranks lower in our study.
6. Portland, Oregon
Of all the cities in our top 10, Portland is the least onerous for the driving commuter. Commuters driving around the Portland metro area can be thankful that, on average, they spent only 52 hours per year in traffic. That traffic still costs each driver about $1,200. However, drivers in Portland looking for a parking garage may be out of luck. Portland has the second-lowest number of parking garages per driver in our study, and if you are looking to get your car fixed, Portland ranks in the bottom 13 for repair shops per capita.
7. Anaheim, California
Anaheim commuters are well-acquainted with traffic. Anaheim (and the rest of the Los Angeles metro area) ranks third in average hours per year spent in traffic, first for commuter stress index and fifth for annual cost of idling in traffic. Anaheim only ranks seventh because Walkability.com gives the city a 46 out of 100 for non-driving options. Thatâs the lowest score in our top 10 meaning, while owning a car here is a pain, not owning one makes getting around a true struggle.
8. New York, New York
New York is the rare American city where public transportation is usually your best bet for getting from point A to point B. All that accessibility makes car ownership unnecessary here. For New Yorkers who do drive, the traffic is not pleasant. New York drivers spend $1,700 per year, on average, waiting in traffic. Thatâs the third-highest cost in our study.
Not sure if youâre ready to buy in NYC? Check out our rent vs. buy calculator.
9. Seattle, Washington
Seattle has pretty bad traffic. Commuters here probably arenât surprised to hear the average driver spends 63 hours per year in traffic. And coupled with the traffic is the high number of motor vehicle thefts. Seattle has the fourth-highest rate of motor vehicle thefts per 1,000 residents in the country.
10. Boston, Massachusetts
Boston ranked well in our study on the most livable cities in the U.S. partially based on how easy it is to get around without a car. After New York and San Francisco, Boston is the most walkable city in the country, making the cost of having a car one expense which Bostonians can possibly go without. Although occasionally maligned, the Massachusetts Bay Transit Authority is a great option for commuters who want to avoid the 64 hours per year Boston drivers spend in traffic.
Data and Methodology
In order to rank the worst cities to own a car, we looked at data on the 100 largest cities in the country. Specifically we looked at these seven factors:
Average total hours commuters spend in traffic per year. Data comes from the Texas A&M Transportation Institute 2014 Mobility Score Card.
Cost of time spent in traffic per person. This measures the value of extra travel time and the extra fuel consumed by vehicles in traffic. Travel time is calculated at a value of $17.67 per hour per person. Fuel cost per gallon is the average price for each state. Data comes from the Texas A&M Transportation Institute 2014 Mobility Score Card.
Commuter stress index. This metric is developed by the Texas A&M Transportation Institute 2014 Mobility Score Card. It measures the difference in travel time during peak congestion and during no congestion. A higher ratio equals a larger difference.
Non-driving options. This metric measures the necessity of owning a car in each city by considering the cityâs walk score, bike score and transit score. We found the average of those three scores for each city. Higher scores mean residents are less reliant on cars. Data comes from Walkability.com.
Motor vehicle thefts per 1,000 residents. Data on population and motor vehicle thefts comes from the FBIâs 2015 Uniform Crime Reporting Program and from local police department and city websites. We used the most up to date data available for cities where 2015 data was not available.
Number of repair shops per 10,000 drivers. Data on drivers comes from Texas A&M Transportation Institute 2014 Mobility Score Card. Data on repair shops comes from the U.S. Census Bureauâs 2014 Business Patterns Survey.
Parking garages per 10,000 drivers. Data on drivers comes from Texas A&M Transportation Institute 2014 Mobility Score Card. Data on parking garages comes from the U.S. Census Bureauâs 2014 Business Patterns Survey.
We ranked each city across each factor, giving double weight to non-driving options and half weight to motor vehicle thefts per driver, repair shops per driver and parking garages per driver. All other factors received single weight. We then found the average ranking across each city. Finally we gave each city a score based on their average ranking. The city with the highest average received a score of 100 and the city with the lowest average received a score of 0.
Questions about our study? Contact us at email@example.com.
Itâs pretty hard to argue against having more money in the bank.
But what are you saving for? If you donât have solid financial goals, all those hoarded pennies might end up in limbo when they could be put to good use.
Figuring out where your money should go might seem daunting, but itâs actually a lot of fun.
You get to analyze your own priorities and decide exactly what to do with your hard-earned cash.
But to make the most of your money, follow a few best practices while setting your goals.
After all, even if something seems like exactly what you want right now, it might not be in future-youâs best interest. And youâre playing the long gameâ¦ thatâs why theyâre called goals!
What to Do Before You Start Writing Your Financial Goals
To help keep you from financial goals like âbuy the coolest toys and cars,â which could easily get you deeply into debt while you watch your credit score plummet, weâve compiled this guide.
Itâll help you set goals and create smart priorities for your money. That way, however you decide to spend your truly discretionary income, you wonât leave the 10-years-from-now version of you in the lurch.
First Thingâs First: How Much Money Do You Have?
You canât decide on your short- or long-term financial goals if you donât know how much money you have or where itâs going.
And if youâre operating without a budget, it can be easy to run out of money well before you run out of expenses â even if you know exactly how much is in your paycheck.
So sit down and take a good, hard look at all of your financial info.
A ton of great digital apps can help you do this â here are our favorite budgeting apps â but it can be as simple as a spreadsheet or even a good, old-fashioned piece of paper. It just takes two steps:
Figure out how much money you have. It might be in checking or savings accounts, including long-term accounts like IRAs. Or, it might be wrapped up in investments or physical assets, like your paid-off car.
Assess any debts you have. Do you keep a revolving credit card balance? Do you pay a mortgage each month? Are your student loans still hanging around?
Take the full amount of money you owe and subtract it from the total amount you have, which you discovered in step one. The difference between the two is your net worth. Thatâs the total amount of money you have to your name.
If it seems like a lot, cool. Hang tight and donât let it burn a hole in your pocket. Weâre not done yet.
If it seems likeâ¦ not a lot, well, you can fix that. Keep reading.
Create a Budget
Once youâve learned your net worth, you need to start thinking about a working budget.
This will essentially be a document with your total monthly income at the top and a list of all the expenses you need to pay for every month.
And I do mean all of the expenses â even that $4.99 recurring monthly payment for your student-discounted Spotify account definitely counts.
Your expenses probably include rent, electricity, cable or internet, a cell phone plan, various insurance policies, groceries, gas and transportation. It also includes categories like charitable giving, entertainment and travel.
Print out the last two or three months of statements from your credit and debit cards and categorize every expense. You can often find ways to save by discovering patterns in your spending habits.
Itâll depend on your individual case â for instance, I totally have âwineâ as a budget line item.
See? Itâs all about priorities.
Need to go back to basics? Hereâs our guide on how to budget.
Start by listing how much you actually spent in each category last month. Subtract your total expenses from your total income. The difference should be equal to the amount of money left sitting in your bank account at monthâs end.
Itâs also the money you can use toward your long-term financial goals.
Want the number to be bigger? Go back through your budget and figure out where you can afford to make cuts. Maybe you can ditch the cable bill and decide between Netflix or Hulu, or replace a takeout lunch with a packed one.
You donât need to abandon the idea of having a life (and enjoying it), but there are ways to make budgetary adjustments that work for you.
Set the numbers youâre willing to spend in each category, and stick to them.
Congratulations. Youâre in control of your money.
Now you can figure out exactly what you want to do with it.
Setting Financial Goals
Before you run off to the cool-expensive-stuff store, hold on a second.
Your financial goals should be (mostly) in this order:
Build an emergency fund.
Pay down debt.
Plan for retirement.
Set short-term and long-term financial goals.
We say âmostlyâ because itâs ultimately up to you to decide in which order you want to accomplish them.
Many experts suggest making sure you have an emergency fund in place before aggressively going after your debt.
But if youâre hemorrhaging money on sky-high interest charges, you might not have much expendable cash to put toward savings.
That means youâll pay the interest for a lot longer â and pay a lot more of it â if you wait to pay it down until you have a solid emergency fund saved up.
1. Build an Emergency Fund
Finding money to sock away each month can be tough, but just starting with $10 or $25 of each paycheck can help.
You can make the process a lot easier by automating your savings. Or you can have money from each paycheck automatically sent to a separate account you wonât touch.
You also get to decide the size of your emergency fund, but a good rule of thumb is to accumulate three to six times the total of your monthly living expenses. Good thing your budget is already set up so you know exactly what that number is, right?
You might try to get away with a smaller emergency fund â even $1,000 is a better cushion than nothing. But if you lose your job, you still need to be able to eat and make rent.
2. Pay Down Debt
Now, letâs move on to repaying debt. Whyâs it so important, anyway?
Because youâre wasting money on interest charges you could be applying toward your goals instead.
So even though becoming debt-free seems like a big sacrifice right now, youâre doing yourself a huge financial favor in the long run.
Thereâs lots of great information out there about how to pay off debt, but itâs really a pretty simple operation: You need to put every single penny you can spare toward your debts until they disappear.
One method is known as the debt avalanche method, which involves paying off debt with the highest interest rates first, thereby reducing the overall amount youâll shell out for interest.
For example, if you have a $1,500 revolving balance on a credit card with a 20% APR, it gets priority over your $14,000, 5%-interest car loan â even though the second number is so much bigger.
If youâre motivated by quick wins, the debt snowball method may be a good fit for you. It involves paying off one loan balance at a time, starting with the smallest balance first.
Make a list of your debts and (ideally) donât spend any of your spare money on anything but paying them off until the number after every account reads â$0.â Trust me, the day when you become debt-free will be well worth the effort.
As a bonus, if your credit score could be better, repaying revolving debt will also help you repair it â just in case some of your goals (like buying a home) depend upon your credit report not sucking.
3. Plan for Retirement
All right, youâre all set in case of an emergency and youâre living debt-free.
Congratulations! Weâre almost done with the hard part, I promise.
But thereâs one more very important long-term financial goal you most definitely want to keep in mind: retirement.
Did you know almost half of Americans have absolutely nothing saved so they can one day clock out for the very last time?
And the trouble isnât brand-new: Weâve been bad enough at saving for retirement over the past few decades that millions of todayâs seniors canât afford to retire.
If you ever want to stop working, you need to save up the money youâll use for your living expenses.
And you need to start now, while compound interest is still on your side. The younger you are, the more time you have to watch those pennies grow, but donât fret if you got a late start â hereâs how to save for retirement in your 20s, 30s, 40s and 50s.
If your job offers a 401(k) plan, take advantage of it â especially if your employer will match your contributions! Trust me, the sting of losing a percentage of your paycheck will hurt way less than having to work into your golden years.
Ideally, youâll want to find other ways to save for retirement, too. Look into individual retirement arrangements (IRAs) and figure out how much you need to contribute to meet your retirement goals.
Future you will thank you. Heartily. From a hammock.
FROM THE BUDGETING FORUM
Starting a budget
A reminder NOT to spend.
Grocery Shopping – How far away is your usual store?
See more in Budgeting or ask a money question
4. Set Short-Term and Long-Term Financial Goals (the Fun Part!)
Is everything in order? Amazing!
Youâre in awesome financial shape â and youâve made it to the fun part of this post.
Consider the funds you have left â and those youâll continue to earn â after taking care of all the financial goals above. Now think: What do you want to do with your money?
What experiences or things can your money buy to significantly increase your quality of life and happiness?
You might plan to travel more, take time off work to spend with family or drive the hottest new Porsche.
Maybe you want to have a six-course meal at the finest restaurant in the world or work your way through an extensive list of exotic and expensive wines. (OK, Iâll stop projecting.)
No matter your goals, itâs helpful to categorize them by how long theyâll take to save for.
Make a list of the goals you want to achieve with your money and which category they fall into. Then you can figure out how to prioritize your savings for each objective.
For example, some of my goals have included:
Short-term financial goal: Save spending money for a trip overseas.
Medium-term financial goal: Pay off my car within a year, or sell it â and its onerous loan â and buy an older car I can own free and clear.
Long-term financial goal: Buy a house I can use as a home base and increase my income by renting it out while I travel. This will probably take me through the rest of my 20s.
By writing down my short- and long-term financial goals and approximately how long I expect it will take to achieve each, I can figure out what to research and how aggressively I need to plan for each goal.
It also offers me the opportunity to see what I prioritize â and to revise those priorities if I see fit.
Jamie Cattanach (@jamiecattanach) is a contributor to The Penny Hoarder.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
Setting up a budget is challenging. Doing it forces you to face your spending habits and then work to change them.
But when you decide to make a budget, it means youâre serious about your money. Maybe you even have some financial goals in mind.
The end result will bring you peace of mind. But if youâre creating a budget for the first time, remember that budgets will vary by individual and family. Itâs important to set up a budget thatâs a fit for YOU.
Budgeting for Beginners in 5 Painless Steps
Follow these basic steps and tailor them to your needs to create a monthly budget that will set you up for financial success.
Step 1: Set a Financial Goal
First thingâs first: Why do you want a budget?
Your reason will be your anchor and incentive as you create a budget, and it will help you stick to it.
Set a short-term or long-term goal. It can be to pay off debts like student loans, credit cards or a mortgage, or to save for retirement, an emergency fund, a new car, a home down payment or a vacation.
For example, creating a budget is a must for many people trying to buy their first home. But it shouldnât stop there. Once youâve bought a home, keep sticking to a budget in order to pay off debt and give yourself some wiggle room for unexpected expenses.
Once one goal is complete, you can move on to another and personalize your budget to fit whatever your needs are.
Step 2: Log Your Income, Expenses and Savings
Youâll want to use a Microsoft Excel spreadsheet or another budget template to track all of your monthly expenses and spending. List out each expense line by line. This list is the foundation for your monthly budget.
Tally Your Monthly Income
Review your pay stubs and determine how much money you and anyone else in your household take home every month. Include any passive income, rental income, child support payments or side gigs.
If your income varies, estimate as best as you can, or use the average of your income for the past three months.
Make a List of Your Mandatory Monthly Expenses
Rent or mortgage payment.
Living expenses like utilities (electric, gas and water bills), internet and phone.
Car payment and transportation costs.
Insurance (car, life, health).
Debt repayments for things like credit cards, student loans, medical debt, etc.
Anything that will result in a late fee for not paying goes in this category.
List Non-Essential Monthly and Irregular Expenses
Non-essential expenses include entertainment, coffee, subscription and streaming services, memberships, cable TV, gifts, dining out and miscellaneous items.
Donât forget to account for expenses you donât incur every month, such as annual fees, taxes, car registration, oil changes and one-time charges. Add them to the month in which they usually occur OR tally up all of your irregular expenses for the year and divide by 12 so you can work them into your monthly budget.
Review all of your bank account statements for the past 12 months to make sure you donât miss periodic expenses like quarterly insurance premiums.
Donât Forget Your Savings
Be sure to include a line item for savings in your monthly budget. Use it for those short- or long-term savings goals, building up an emergency fund or investments.
Figure out how much you can afford â no matter how big or small. If you get direct deposit, saving can be simplified with an automated paycheck deduction. Something as little as $10 a week adds up to over $500 in a year.
Step 3: Adjust Your Expenses to Match Your Income
Now, what does your monthly budget look like so far?
Are you living within your income, or spending more money than you make? Either way, itâs time to make some adjustments to meet your goals.
How to Cut Your Expenses
If you are overspending each month, donât panic. This is a great opportunity to evaluate areas to save money now that you have itemized your spending. Truthfully, this is the exact reason you created a budget!
Here are some ways you can save money each month:
Cut optional outings like happy hours and eating out. Even cutting a $4 daily purchase on weekdays will add up to over $1,000 a year.
Consider pulling the plug on cable TV or a subscription service. The average cost of cable is $1,284 a year, so if you cut the cord and switch to a streaming service, you could save at least $50 a month.
Fine-tune your grocery bill and practice meal prepping. Youâll save money by planning and prepping recipes for the week that use many of the same ingredients. Use the circulars to see whatâs on sale, and plan your meals around those sales.
Make homemade gifts for family and friends. Special occasions and holidays happen constantly and can get expensive. Honing in on thoughtful and homemade gifts like framed pictures, magnets and ornaments costs more time and less money.
Consolidate credit cards or transfer high-interest balances. You can consolidate multiple credit card payments into one and lower the amount of interest youâre paying every month by applying for a debt consolidation loan or by taking advantage of a 0% balance-transfer credit card offer. The sooner you pay off that principal balance, the sooner youâll be out of debt.
Refinance loans. Refinancing your mortgage, student loan or car loan can lower your interest rates and cut your monthly payments. You could save significantly if youâve improved your credit since you got the original loan.
Get a new quote for car insurance to lower monthly payments. Use a free online service to shop around for new quotes based on your needs. A $20 savings every month is $20 that can go toward savings or debt repayments.
Start small and see how big of a wave it makes.
Oh, and donât forget to remind yourself of your financial goal when youâre craving Starbucks at 3 p.m. But remember that itâs OK to treat yourself â occasionally.
What to Do With Your Extra Cash
If you have money left over after paying for your monthly expenses, prioritize building an emergency fund if you donât have one.
Having an emergency fund is often what makes it possible to stick to a budget. Because when an unexpected expense crops up, like a broken appliance or a big car repair, you wonât have to borrow money to cover it.
When you do dip into that emergency fund, immediately start building it up again.
Otherwise, you can use any extra money outside your expenses to reach your financial goals.
Here are four questions to ask yourself before dipping into your emergency fund..
Step 4: Choose a Budgeting Method
You have your income, expenses and spending spelled out in a monthly budget, but how do you act on it? Trying out a budgeting method helps manage your money and accommodates your lifestyle.
Living on a budget doesnât mean you canât have fun or splurges, and fortunately many budgeting methods account for those things. Here are a few to consider:
The Envelope System is a cash-based budgeting system that works well for overspenders. It curbs excess spending on debit and credit cards because youâre forced to withdraw cash and place it into pre-labeled envelopes for your variable expenses (like groceries and clothing) instead of pulling out that plastic.Â
The 50/20/30 Method is for those with more financial flexibility and who can pay all their bills with 50% of their income. You apply 50% of your income to living expenses, 20% toward savings and/or debt reduction, and 30% to personal spending (vacations, coffee, entertainment). This way, you can have fun and save at the same time. Because your basic needs can only account for 50% of your income, itâs typically not a good fit for those living paycheck to paycheck.
The 60/20/20 Budget uses the same concept as the 50/20/30, except you apply 60% of your income to living expenses, 20% toward savings and/or debt reduction, and 20% to personal spending. Itâs a good fit for fans of the 50/20/30 Method who need to devote more of their incomes to living costs.
The Zero-Based Budget makes you account for all of your income. You budget for your expenses and bills, and then assign any extra money toward your goals. The strict system is good for people trying to pay off debt as fast as possible. Itâs also beneficial for those living to paycheck to paycheck.
Another money management option is to use a budgeting app. Apps can help you organize and access your personal finances on the go and can alert you of finance charges, late fees and bill payment due dates. Many also offer free credit score monitoring.
FROM THE BUDGETING FORUM
Starting a budget
A reminder NOT to spend.
Grocery Shopping – How far away is your usual store?
See more in Budgeting or ask a money question
Step 5: Follow Through
Budgeting becomes super easy once you get in the groove, but you canât set it and forget it. You should review your budget monthly to monitor your expenses and spending and adjust accordingly. Review checking and savings account statements for any irregularities even if you set bills to autopay.
Even if your income increases, try to prioritize saving the extra money. That will help you avoid lifestyle inflation, which happens when your spending increases as your income rises.
The thrill of being debt-free or finally having enough money to travel might even inspire you to seek out other financial opportunities or advice. For example, if youâre looking for professional help, set up a consultation with a certified financial planner who can assist you with long-term goals like retirement and savings plans.
Related: How to Budget: The Ultimate Guide
Stephanie Bolling is a former staff writer at The Penny Hoarder.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.