Budgeting Tips

Budgeting doesn’t always have the best connotation

However, it is no doubt effective in helping you manage your money when done correctly. That said, is not a one-size-fits-all solution, so keep this in mind as you try methods to see what works best for you. Below, we share some of our favorite budgeting tips, tricks and rules of thumb.

1. Find Out Where Your Money is Really Going

You may think you know, but keeping track of all of your expenses for a finite amount of time – be it a week, a month or even a few months – can really be an eye opener. For example, you may think that your housing and living expenses are the most significant portion of your income. However, after tracking it for a period of time you may discover that the “leak” in your money pool involves spending on things like eating out, shopping and entertainment activities

2. Set a Realistic Goal for Savings

Let’s face it – who wouldn’t want several thousand dollars in savings built up for an emergency fund? Can it happen for you overnight – probably not. Depending on your unique financial situation, set a savings goal that you can actually meet. Don’t think you can aggressively save 30-40% of your monthly income when that would mean that you wouldn’t severely limit any spending cash you would have for the month. The more realistic your goal, the more likely you will be able to stick to it.

3. Don’t Overspend on Large Debts

For most, your home and your vehicle are your largest payments. Whether you are renting or you own your home we encourage you to spend no more than 28% of your monthly gross (before taxes) income on your home each month. If you are considering getting pre-qualified for a mortgage, keep in mind that some mortgage products have a maximum housing ratio themselves and all mortgage products have a maximum overall debt ratio. If you feel as if you could reduce your housing and/or vehicle expenses through a refinance, it may be something to consider. Less money put towards these monthly obligations frees up funds for saving and/or paying down other debts faster.

Quick Math

If your hourly rate is $15.00/hr. And you work full-time, you gross approximately $31,200 per year (($15.00*2080)/12). On a monthly basis, your gross income would be $2,600 ($31,200/12 months). By this calculation, you should spend no more than $728 on your rent/mortgage.


4. Try the 50/30/20 method

This method has become more popular in recent years after being coined in a self-authored book by Harvard bankruptcy expert Elizabeth Warren and her daughter, Amelia Tyagi. The model involves the budgeter using:

  • 50% of after tax income for essentials. The rule of thumb is to count something as an essential only if it is something that you need to operate and function within your daily life (i.e. rent/house payment, electric bill, water bill and cell phone bill). These items are not to exceed 50% of your net (after-tax) income each month.
  • 30% of your after tax income towards “wants.” Wants are things beyond what you need for survival. Things in this category include your cable bill, your Netflix subscription, your new fall wardrobe (minus a few pieces that could be classified as a need), eating out and those data overages on your cell phone bill.
  • 20% of your after tax income towards savings and debts. In the case of this budget exercise, your mortgage and car payment count towards your necessities (i.e. the 50% figure above). This figure includes payments for debts other than your mortgage and your vehicle such as credit cards or student loans.



How Long Until I Reach My Savings Goal?

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