by Danielle Arlotta CFP®, Lead Planner
Our previous financial literacy newsletter focused on how to jumpstart your savings. After setting up your savings, it’s important to stick to your budget so you can continue to save comfortably. Creating a budget isn’t usually people’s favorite pastime, but it will help you see where you stand financially and make progress. Your budget also doesn’t need to be tedious or super detailed; we want it to be straightforward and therefore easily maintained.
Follow these steps for a foolproof budget that eliminates tedious expense tracking:
1. Understand how much you are earning and spending a month
To create a budget you can live within you need to know how much you are making and how much you are spending. There are many ways you can do this. You can use apps like Mint, spreadsheets, or pen and paper. Whatever you choose, establish how much you are spending on fixed expenses versus how much income you have left over. We suggest keeping your fixed expenses under 50% of your take-home pay.
2. Set up a weekly allowance for your variable spending
After calculating your fixed expenses we suggest that people set up an allowance for their variable spending. This way you don’t get bogged down with making sure that you stay within your budget categories like dining out or shopping. Don’t forget about the savings that you already have set up when you are giving yourself that weekly allowance. This video gives you more detail on how to set that spending system up.
3. Use debit not debt to monitor your spending
If you are spending on your credit cards, it is hard to keep track of what you are really spending on a monthly basis. It is also a lot easier to overspend. By keeping everything on a debit card, you are more likely to be more conscious of what you are buying and how much you are spending in a month. I know you’re thinking– ‘but what about the points?’ They’re not worth the confusion if you don’t have clarity on your spending.
4. Review where your money is being held
You should also review your checking account. Most major banks, like Chase and Bank of America, will charge fees for your account if you don’t meet specific requirements. Banks like Ally, Charles Schwab, and Capital One have checking and savings accounts that have high-interest rates and no basic account fees.
5. Make adjustments to your plan
As you get used to the spending system, make sure that you are updating it for changes in your income and expenses. Have someone hold you accountable! Having a partner to keep you honest will encourage you to continue to stick to your budget.
Your Next Step: ☐ Calculate your fixed expenses