Budgeting
Top Tips
Many people use the 50/30/20 rule when it comes to budgeting, accounting for 50% of your earnings for needs (like food and housing), 30% for wants (like entertainment), and 20% for savings.
Keep an emergency fund!
An important aspect of financial literacy is knowing how to budget. A budget is a plan that helps you track all of your expenses and income. By budgeting, you can know exactly where all of your money is coming and going from.
The key to budgeting is to be realistic about your finances, but not irresponsible.
Budgeting is just a plan, and your actual spending might be very different than what you accounted for in your budget. A good way to avoid this problem is to track all of your expenses for a month or two so you can see exactly how much you're earning on average and exactly where your money is going.
Tracking all of your spending takes time and effort, and sometimes feels futile, but it is one of the best ways a financially literate individual can stay organized.
The first step toward creating a budget is to find out how much money you have each month. Then, you can figure out your expenses. Things like food, housing, bills, and transportation are all examples of expenses.
Some expenses are fixed, meaning they are the same every month; others are variable, meaning the amount you pay month to month may change. You may realize as you track your expenses that there are ways to minimize spending in these areas.
You should also think about your definition of needs vs. wants. Identifying things that are "wants" that you can live without for a few months, like a magazine subscription, can help you minimize expenses by canceling that subscription.
You can track your spending with anything, whether it be a pen and paper, an excel spreadsheet, or a an website/app such as Mint.com.
Mint is a great, free website/app you can use to track bill payments, budget, and even find your credit reports.
Goal Setting
Another important part of budgeting is making financial goals for both the short-term and the long-term. Goal setting helps to motivate you to stick to your budget. Short-term goals should be achievable in one to three years, like paying off credit card debt or reducing monthly expenses. Long-term goals include things like saving for you or your child's education.
More Resources on Budgeting:
Keep in Mind:
Life is unpredictable and budgets may not always be fixed. Make sure to review and change your budget as it fits your needs.
Also, make sure you set aside a set percentage of your earnings a month to go towards an emergency fund. It is extremely important that you have a form of financial support in case your life unexpectedly takes a sour turn.