Budgeting Tips to Start Planning Your Future
Becoming one with your income and expenses could be a difficult task. Knowing what you need to spend your money on versus what you want to spend it on can be a hard habit to break. Essentially, budgeting is the fundamental process of calculating your expenses and allocating your finances to ensure that you save for your future effectively. About 44% of Americans don’t use a budgeting system and 39% would have a hard time covering an unexpected expense. Budgeting is so crucial to every American that it should always be top-of-mind and given thought in your daily life. Peoples Security Bank is here to provide steps on how to budget and ways to improve your spending habits.
Your Income Comes First
The first step to taking control of your budget is to know how much income you are receiving after taxes. If you have a complete understanding of where you money is coming from, this will lead you to being able to set up spending and saving objectives. Income can come from multiple sources such as your regular paycheck, a side job, or government benefits. You can calculate your total monthly income by adding up each source of net income. Net income is the amount of pay you receive from work after taxes.
Learn How to Budget Effectively
The reason why it is so important to budget is because you provide yourself some insurance and peace of mind knowing you have enough income to cover all of your expenses and you have money to save for the future. But learning how to budget effectively can require some dedication and time to fully understand your finances and utilize it the best you can.
If you have a difficult time coming up with an effective way to save, a common practice for a budgeting plan is the 50/30/20 strategy. The purpose of this strategy is to separate your income into these three categories:
- Needs – 50% - Mortgage or Rent, Food, Utilities, and Transportation
- Wants – 30% - Shopping, Vacations, Entertainment, and Restaurants
- Savings – 20% - Retirement and Unexpected Expenses
Pay Yourself First
A very useful method to ensure you are saving is to “Pay Yourself First”. If you are finding it hard to increase your savings, set aside a certain amount of income to ensure you don’t spend it. A great way to do this is to set up automatic transfers through Online Banking to your PSBT savings account before you start spending your paycheck. Saving should always be a priority in life and automatic transfers will do the budgeting for you.
Track How Much You’re Saving and Spending
Once you are confident with a budgeting plan, you will need to be persistent with it. After a month goes by, go back and look over your spending. Also, it is important to keep track of your spending on a regular basis depending on how often you receive a paycheck. If you realize over time that you are struggling to save, look over your monthly expenses to see if there is any spending habits that be corrected. Depending on your preference, you can track your budget on a daily, weekly, or monthly basis and reassess your budgeting plan every month. Once you find something that works for your budget, you can make slight adjustments to it after longer periods of time.