As a bookkeeper, the number one issue I see in the success or failure of a family or a business is spending and saving habits. Budgeting sounds scary and strict but it’s just a spending and saving plan for our money which can be simple and should be fun! It’s a plan to control our money so that money doesn’t control us. We should treat our time and dollars with respect and make a plan today to make life more peaceful and less stressful.
Many people are living paycheck to paycheck because they don’t have a basic plan to make their money work for them. With no money in the bank, we lack basic security, and this causes stress. What if the car breaks down, do you have immediate access to $1,000 for repairs? If you get sick, do you have immediate access to $500 for immediate payment to a doctor? If not, a simple budget/spending savings plan can be your friend and should be your first priority.
There are many recommendations for setting up a budget. The first step is to make a list of all expenses. Don’t forget food, gas, clothing, and loans. These are real expenses that need a place in the plan. When the list is complete it is time to set up a simple spending savings plan and fit the numbers in accordingly.
A good rule of thumb is to pay yourself first. 10% of your income should go directly to your savings account. This account will be your safety net and will take financial stress out of your life. Watching this account balance grow to the point where you have access to one month’s income in your savings is a great safety net. This type of progress is real and is just the start.
Housing should total no more than 30% of your income. If your mortgage or rent is higher than 30%, you’re living above your means and this is the meaning of house poor. If the housing part of your budget is above 30%, it is time to take steps to live within your means because the extra money that you are paying above the 30% is coming out of your savings.
Regular expenses should fit into the 30% category. This would include your car payment, utilities, food, gas, clothing, etc. These expenses are due each month and if they total more than 30% of your income, this is cutting into your savings safety net. Whatever you can do to cut these expenses down to the 30% goal will reduce your stress level. It might seem that there is nothing to cut! However, when we are working towards a goal, we can find all kinds of problem-solving ideas. Think about it and get creative!
And finally, 30% of your income should go towards your debt repayment. This would be all credit cards and personal loans. The goal is to get this category to $0 and start putting this 30% towards your car payment, then your mortgage. The result is that you can quickly get to a 40% savings goal. More money in the bank means you can finally buy that house if you are renting, take the family on a great vacation without stress, or save for retirement which at this point starts to feel like a reality. When you’re able to pay your debt to $0 and use this money to instead invest in your future, you have started to master your money.
I’m inspired by creative budgeting tips! What’s your favorite tip?
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