Saving money and learning how to appropriately budget for spending are goals for most people. The best way to achieve these goals is to figure out your monthly net income and use that number to start your budget.
The 50/20/30 Rule
Financial experts generally suggest using your net monthly take-home pay as a base number to plan how you should allocate your spending. One of the simplest rules to follow is the 50/20/30 breakdown.
According to a June 2014 article on LearnVest.com by contributor Laura Shin, the 50/20/30 rule is applicable for all ages and incomes, and will help you budget your money according to your lifestyle and goals. It breaks down your budgeting into three main categories: fixed costs, financial goals and flexible spending.
- Fixed costs - ï¿½When it comes to fixed costs, we generally suggest that you aim to keep your monthly total no more than 50 percent of your take-home pay,ï¿½ says Shin. These are bills and payments that stay the same or close to the same month over month, like rent or mortgage, utilities, and even a gym membership or monthly subscription services.
- Financial goals - ï¿½Consider putting at least 20 percent of your take-home pay toward important payments or contributions that will help you secure your,ï¿½ Shin says. This might include paying down debt, building an emergency fund or saving up to purchase a home.
- Flexible spending - ï¿½Consider budgeting no more than 30 percent of your take-home pay toward flexible spending. These are day-to-day expenses that can vary from month to month, like eating out, groceries, shopping, hobbies, entertainment, or gas,ï¿½ Shin says.
ï¿½Whether youï¿½re a parent with two kids or a recent college grad working your first job, this 50/20/30 guideline can help you not only figure out how much you may want to allocate to each area every month; it can also help you determine the order in which your money can be allocated,ï¿½ advises Shin.
Use this rule as a guide for where to allocate your money, and youï¿½ll be on the way to reaching your financial goals.
Simple Tips for Investments and College Plans
Once youï¿½ve decided on your goals and figured out your budget, there are a few simple things you can do to boost your investment and college savings.
To start, always pay yourself first. This means putting money from your paycheck into savings, even before you start paying bills.
ï¿½Many employers allow you to divide your paycheck into different accounts through direct deposit. Take advantage by putting part of your pay into a savings account. If you get paid in cash, take a small amount to the bank to deposit into a savings account each week,ï¿½ suggests a February 2012 article on MoneyManagement.org.
If you choose to invest some of your money to build savings, consider the fees associated with the accounts you choose.
ï¿½When you put money toward your nest egg or other big savings goals, you donï¿½t want it leaked away to high fees. Opt for index funds, ETFs and other low-cost investments,ï¿½ Shin advises in an August 2016 article in Forbes.
Shin also suggests that you look to low-cost money managers if you want to work with an investment advisor: ï¿½The days of having to pay someone one percent of assets under management are giving way. [Some] new services ï¿½ offer investment management services for as little as 0.15 percent.ï¿½
If youï¿½re budgeting for educational needs, either for yourself or for your (future) children, consider a 529 savings account.
ï¿½The accounts, which are sponsored by states, allow parents to invest after-tax money that then grows tax-free and remains tax-free if you use it to pay for tuition,ï¿½ says a February 2011 article in U.S. News by senior editor Kimberly Palmer, author of ï¿½The Economy of Youï¿½.
Additionally, students can look to refinance their loans once theyï¿½ve graduated to help save on repayment costs.
ï¿½In the last few years, a new crop of online lenders has begun offering lower rates for student loans. ï¿½ Most of these lenders offer rock-bottom rates for people who come from top schools, had good grades, have solid incomes and a strong financial history,ï¿½ says Shin.
If you need help getting your budget plan started, contact us and weï¿½ll be happy to help.