Generally, when you mention the term budget, you can almost see people shut down. Budgets get a bad rap, but, if you take control of the budgeting process, we promise that it will change your finances in the best way possible!
What is a Budget?
Simply stated, a budget is just a plan for income and expenses. It is not designed as a form of punishment. It is merely a way to ensure you have control of your money, instead of your money having control of you.
Let’s be honest. You work so hard for your money. When you do not have a budget set in place, do you find you’re always coming up short? It’s time to get on track, and at Welch State Bank we want to help you do just that!
How to Budget Money
At Welch State Bank, we recommend budgeting with the 50/30/20 rule. That means you all 50% of your income for needs, 30% for wants, and you commit 20% of your income to savings and debt repayment. If you follow a plan like this, you should have room to handle debt, indulge in extras, handle unexpected expenses, and also retire comfortable.
Note Your After-Tax Income
The first step when it comes to planning your budget, is to figure out your after-tax income. If you are like most, there is a good chance that you have automatic deductions for things such as 401(k), savings, health, and maybe even life insurance. So what we want to do is to have you take that number and put it back to give you the actual total income that you have after taxes are removed.
List all Fixed Monthly Expenses, Then Lay Out Your Budget
Your fixed monthly expenses should include things such as groceries, housing, transportation, insurance, childcare, minimum loan payments, and basic utilities. If you are in a position where your essentials goes over the 50% mark, it is your wants portion of your budget you need to dive into next.
Once you have your fixed monthly experiences lined up, it is important to talk about your wants. It can be truly difficult to see the difference between wants and needs, but wants typically include things like dinners out, gifts, travel, and entertainment.
After your essentials and wants are decided for, it is important to pay off debt and save with the last 20% of after your after-tax income. As you begin to save it is important for you to start an emergency fund. Most of the time when you read about how much you should have in an emergency fund you probably are overwhelmed at the thought of needing months’ worth of expenses in an account waiting for a rainy day. We understand that that can seem intimidating, but you have to start somewhere. As you work to tackle debt, the financial experts at Welch State Bank suggest that you start by aiming to build $500 in an emergency fund. Though $500 isn’t much in the grand scheme of things, it will help you cover small emergencies and repairs.
Set Financial Goals
The term financial goals refer to any plans you have for your money. These goals are important and should help you continue to focus on your long-term goals in order to keep you accountable. Financial goals can be anything like:
- Paying Off Debt
- Building an Emergency Fund
- Saving for Retirement
- Starting a Business
These goals should be used as a wonderful tool to help you keep your spending in check, as these items should serve to remind you of your plans for the future.
Determine Your Discretionary Expenses
Discretionary spending budgets are designed to be for anything you want, but you would not necessarily say that you need. This 30% of your after-tax income should cover non-necessities such as entertainment and travel and can be considered your fun money.
As you take a hard look at your spending, you may find that you are spending a lot more on non-necessities than you think. It is important to cut back and eliminate those. For example, maybe you need to cut back to eating out only one night a week as oppose to multiple nights a week.
Automate Your Savings and Bills
It is so important to automate as much money as possible for a specific purpose. When you choose to automate money, there is minimal effort on your part, making it easy to save funds.
Choosing to automate your bills is also a wonderful tool for ensuring you stay on track with your budget. Many bill companies allow for automatic payments, which means you spend less time paying bills. As you make note of all your expenses that you plan to automate (especially in relation to bill payments), be sure to write down all bill due dates and incorporate that into your budget as well. That way you can ensure you have funds available so that you avoid any feeds due to insufficient funds.
You can also take automation one step further by choosing to automate your emergency fund account as well. We have the tools at Welch State Bank to help automate this so that you don’t have to worry about spending your savings before you have a chance to transfer the money to the account it needs to be in.
Implement, Monitor, and Adjust Your Budget
At Welch State Bank, we understand that your priorities and expenses will change over time. We want you to know that it is okay to periodically change your budget, because life changes and needs may arise. However, the key to ensuring a successful budget is monitoring it so that you can see how your funds are continuously spent, and make sure that you do not spend excessively on wants.
Monitoring your budget is the key to a healthy financial future, as it helps you make the most out of your money.
Are you ready for a healthier financial future? We have your back at Welch State Bank, and we want you to know that we are here for you. Our financial experts are here to help guide you along the way, at no additional charge to you. You see, that’s what is great about Welch State Bank, we are a family and we want to help you put your best financial foot forward.