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How to create a budget (and why it’s important)
Everybody looks forward to payday, but when you’re living paycheck to paycheck, it can’t come fast enough. How many times can you squeak by eating pasta for dinner and praying your landlord waits an extra day to cash that check before you figure out that there must be a better way?
It may not be intentional, but living on the financial edge is incredibly stressful. If we told you there’s a more effective way to manage your money, that you’ll be able to see where you’re overspending and even start saving, would you listen? Well, pay attention, because creating a monthly budget is the answer and it’s not as hard as you might think.
Most people think a budget is about restrictions–and that’s no fun. That’s also not true. People at all levels of income use budgeting to as a way to maintain control in their lives. The reality is, you can do anything and go anywhere you want, as long as you understand your cash flow and plan ahead. It’s all about making wise decisions and prioritizing what’s most important. It’s about having a plan, and that’s what a budget is.
Creating a budget
There are 5 easy steps to creating and managing a budget:
Step 1: What are my goals?
Write down your short and long-term financial goals. Do you want to pay off your credit cards, buy a house, start a family, retire in 20 years, fund your kids’ college education? It can be any number of things, but you have to have to have a reason that fuels your efforts. Otherwise, you’ll lose your motivation.
Make a list and post them in a place where you’ll see them every single day. If you’re a visual person, create a vision board. Regardless of whether it’s a list or a group of pictures, it should serve as a daily reminder of what you’re working towards.
Step 2: Where SHOULD my money be going?
We know there’s no budgeting equation fits everyone’s situation, but some general guidelines have proven to help keep people on the road to reaching their financial goals. Ideally, your spending should be divided among fixed costs, flexible expenses, and savings.
Your fixed costs are the bills that are generally the same amount each month, (e.g., rent, utilities, phone, insurance, credit card payments, car payment, etc.). Shoot to spend no more than 50% of your take-home pay on these expenses.
Flexible expenses are those that vary. Things like entertainment, groceries, gas, gifts, and clothing fall into this category. Thirty percent of your take-home pay is what you should aim to spend in this area.
Your savings has to be a priority if you’re going to reach your goals. You remind yourself of what you’re working towards when you look at that list or those pictures every day. In a perfect world, you could set aside 20% of your take-home pay into a savings or investment account.
3. Where IS my money going?
If you’re living paycheck to paycheck and you want to save some money, you’re going to need to start living below your means. That’s pretty difficult to do if you don’t understand where your money is going now.
Make a list of all your recurring expenses last month. Then, add in all other expenses including restaurant bills, groceries, lattes, shopping, dates, movies, and that late night Uber. Finally, how much were you able to save last month?
With all of those numbers in front of you, you should have a much more clear picture of where your money is allocated during the month. And, if the answer to the last questions is zero, you know it’s time to start prioritizing your spending and looking for ways to cut costs.
4. Create your budget
Now it’s time to create a budget that works for you and your personal needs.
Apply the percentages against your monthly take-home pay for fixed costs (50%), flexible expenses (30%) and savings (20%) and compare those numbers against your current needs. Are they realistic?
In the beginning, they may not be, but that’s no reason to give up. Look for ways to reduce expenses and cut costs. Shop cable providers, cancel that Netflix subscription, cook dinner at home, work to pay off that high-interest credit card. You’ll be saving money by getting rid of the interest charge sooner than later. Just be sure to keep your other credit card payments current. Every change you make is progress, and it’s one step closer to your goal.
5. Track everything you spend
The only way to know where you spend your money is to track it. There are apps like Mint, HomeBudget, and BudgetBoss, to name a few, that are designed help you create your budget and track your progress from your smartphone, computer or tablet. It’s the last step in the budget process, but it’s the most important. Tracking keeps you accountable and is a huge motivator, but if you don’t do it, all the work you’ve done to get this far will gradually slip away and you’ll be more likely to fall into your old habits again. Whether you do it yourself or use an online program, make sure you track!
How to Set a Budget for Holiday Spending
You might have pumpkins on your porch, but it’s already time to make room for the year-end holidays in your budget.
“I was at Costco the other day, and I already saw Christmas trees, [so] we need to be thinking about it right now,” says Nick Givogri, a California-based regional executive for investment service Merrill Edge.
Here’s how to get started.
Your past holiday spending is the best indicator of what you’ll spend this season, says Robert P. Finley, a certified financial planner and principal at Virtue Asset Management in Illinois.
“Try to get your credit card statements,” Finley says. “Try to look at your bank statements. What did I spend on presents? Did I have to do traveling? Did I have to fly somewhere?”
Once you’ve estimated past expenditures, create a baseline for this year that includes what you can reasonably save over the next few months.
For presents, Finley recommends setting a total and dividing it by the number of people on your list. Then prioritize. “If you’re going to spend $1,500 and you have 15 people on your list, some of them you might want to spend more than $100, and others you might want to spend less, and then you can work that way,” he says.
But presents aren’t all you’ll buy. Account for decorations, travel, donations and more. And don’t forget to build in a miscellaneous category. It’ll give you extra cushioning in case a co-worker gives you an unexpected gift — and you feel compelled to reciprocate.
“It’s always better to have a little extra room or miscellaneous — and then you don’t use it and it goes back into savings — than maxing out, and then something comes along and you’re stuck pulling out of savings,” Finley says.
Setting a spending limit is just the beginning. Budgeting requires discipline and regular check-ins, says Richard K. Colarossi, a certified financial planner and partner at Colarossi & Williams in New York.
“If you don’t revisit it, what’s the sense in having it?” Colarossi says. “You have to match the actuals to your budget and see where you’re over and under.”
Givogri agrees. He suggests setting a weekly reminder on your phone to review how much you’ve spent and how much you have left to spend. If you discover you overshot the budget on a particular gift, there’s hope.
“Make an adjustment to the other gifts or make an adjustment to other expenses that you may have for the particular month,” Givogri says, citing strategies such as eating meals at home to save money in anticipation of potentially costly holiday outings.
And always keep your budget’s ultimate goal in mind. It might be focused on the months of November and December, but it will affect your finances well into the new year.
“When you do a budget and start setting aside some money now, you’re probably going to help reduce credit card debt,” Colarossi says. “Otherwise, if you don’t budget and have the money set aside, what’s going to happen? It’s going to go on credit.”
You don’t have to pay for your presents in cash, but you should have the cash to pay them off so you’re not left with hefty interest fees, Colarossi adds.
While you’re thinking about all the gifts you’re going to give this year, plan ahead and budget as a gift to yourself.
Budgeting 101: Creating a Budget & Sticking to It
With the total student loan debt in the United States hovering around a mind-blowing $1.23 trillion, it’s important to be smart about budgeting and managing your money while you’re in school so you’re not one of the 43 million Americans drowning in student loan debt.
Creating and managing a budget isn’t the most fun in the world, but it’s not as much of a hassle as you might think, either. Plus, it’ll help you stay on track during school and avoid graduating with heaps of debt.
For starters, you’ll want to figure out whether you want to track your budget per month, per academic semester (or year), or per calendar year. Once you’ve chosen a time-frame for your budget, you’ll want to decide what tool or tools you want to use to track it. You could go old school with pen and paper, or you might opt for using a computer spreadsheet, or maybe your phone is your life and you’d prefer to use a budgeting app. Georgia’s Own GO Financial Education offers free resources to help with budgeting.. I personally love Mint – it’s simple to use, secure, and automatically updates all of my accounts in one place. Whatever you choose, make sure it’s a tool you’re comfortable with and one you’ll actually use.
Here’s what you’ll need to create your budget:
- Your income: Be sure to include all sources of income, including wages, any financial aid refund, and any contributions from family.
- Your expenses: Expenses include fixed expenses like your cell phone or rent, as well as variable expenses such as dining out or gas for your car (if you have one). For your initial budget, you may have to estimate some expenses until you have a better idea of how much you spend on that category.
The next step is adding up your income and your expenses so you can balance your budget. To do this, you’ll subtract your total monthly expenses from your total monthly income. The goal is to have a positive balance, meaning you’re earning more than you’re spending. If you have money left over each month, you can save it or even start paying on your student loans (if you have any), since they do accrue interest while you’re in school. (Read more about why paying on your loans while in school is a good idea).
If your balance is negative, you’re spending more than you’re earning and need to adjust your budget. You can cut back on expenses or find a way to supplement your income, such as getting a second job.
Now that you’ve created and balanced your budget, there are two more important steps in maintaining that budget:
- Review your budget monthly – doing so will help you stay ahead and avoid surprises.
- If you make a spending mistake, don’t dwell on it. Next time you’re tempted to make an impulse purchase, ask yourself if you really need that item and if so, can you afford it?
Developing good financial habits in college (or earlier) not only helps you cut down on student loan and credit card debt acquired throughout school, but also helps sets you up for success later on in life. Trust me – things like credit scores and savings accounts may seem trivial now, but it’s a lot easier to start off strong than to find yourself in heaps of debt after school and trying to correct mistakes that could have easily been avoided.
Average Wedding Cost Reaches $35k
Thinking about having a wedding soon? Are you prepared for the cost? According to The Knot’s 2016 Real Weddings Study, the average cost of a wedding in the US is $35,329. The study goes on to say that weddings today are less about the bride and groom, and instead are geared more towards entertaining guests. From the venue to food, decorations, and entertainment, couples are providing guests with unforgettable experiences. Don’t let this number scare you — it’s just an average, so there’s room for you to spend less (or more).
If you haven’t started saving for a potential wedding, now might be the time.
RiseUp with an Inexpensive Super Bowl Party
Super Bowl LI is coming up this Sunday! With our hometown Atlanta Falcons making it to the Super Bowl for the first time in 18 years, all eyes in Georgia are sure to be watching the big game. If you’re wanting to throw an inexpensive Super Bowl party to watch with your friends, we know it can be hard work and has the potential to get pricey! But don’t worry, we can help you entertain your friends while making it easy for you and a bit easier on the wallet with a few tips.
Crockpot. Keep it easy and affordable by throwing something in the slow cooker. Soup or chili is a great game day food. Plus it can feed a lot of people and it’s relatively inexpensive.
Make it a team effort. If you’re hosting, it’s okay for you to ask your guests to bring their favorite dish or beverage. After all, you’re the one who has spent time cleaning and are letting people come into your home. Don’t nominate yourself to be in charge of everything!
Buy generic. Name brand chips and sodas are expensive, especially if you’re buying in large quantities. Opt for the store brands to save a few dollars!
Skip Decorations. Sure decorations are a nice addition, but instead of bothering with spending money on something that will likely get thrown away immediately after the game, leave them off the list. Plus it’s one less thing you’ll have to clean up post-game.
Seating. If you think you might be a little short on seating, ask your guests to bring a fold-up or tailgate chair with them. Or if you have multiple rooms with TVs, set both of them up.
Backyard Football. If you have an active group, split into two teams and have a little backyard football game. It’s an easy way to pass some time before the game. Involve the kids as well so they can burn off some energy!
Don’t let the thought of an expensive party keep you from enjoying the game with friends. Especially since our hometown team will be playing! Here’s a little something extra to get you ready for Sunday. Enjoy the game and Go Falcons! #RiseUp