Going from “no budget” to “pro budget” can seem tough. Over half of American households don’t have a monthly budget at all, and this can cause serious problems down the road. If you’re not careful, you could end up blindsided by medical bills, vehicle repairs, or any number of other unexpected expenses that can totally wreck your plans. That’s why it’s so important to establish a budget that’s easy to understand, applicable for any income, and designed to grow with you as you continue to work.
We thought it would be great to share some of our insights on budgeting in order to help our customers get started, or to help those who already have a budget make some smart adjustments. We’ll go over how to divide your income and expenses, building your actual budget, and how to ensure that your budget stays relevant as you continue to grow in your career.
Should I Follow “The Rule”?
You may have heard of the “50-20-30” rule before, advising you to allocate roughly 50% of your income to necessary expenditures (rent, groceries, debt), 20% to savings and investments, and 30% to non-essential expenses, like entertainment or dining out.
While this budget works well for those with an above-average income, those who make a bit less may be unable to stick to this budget. The good news is, you don’t have to follow it to the letter. Budgets need to be flexible, and account for these kinds of differences. This “rule” is really just a general outline for how to most effectively distribute your income. If your necessary expenditures total more than 50% of your income, or you can’t afford to save 20% month-to-month, you should attempt to bring these values closer in line with the guide, but never think of it as an all-or-nothing deal.
How to Get Started
So, you’ve sat down in front of your computer and you’re ready to start building your budget. It’s always helpful to have your financial info on hand, so log in to your online banking portal if you’ve made an account, and let’s get started.
Calculate Monthly Income
For salaried employees, this should be very simple; just calculate your monthly net (after-tax) income based on the sum of your deposits. For hourly or other non-salaried employees, try to look back over the last 3 months and add up your net income over that time period, then divide by 3 to get your “average” monthly income. If you know that a particular time of year is higher or lower paying, try to avoid these and use the most “average” months.
You can use Equity Bank’s paperless bank statements to simplify this process.
Track Your Expenses
The second thing you should do when creating a budget is calculate your expenses. This includes your rent or mortgage, regular bills, and any debt payments you may have. Collecting this information also allows you to prioritize your payments, such as paying off higher-interest debt first.
If you have trouble remembering due dates for bills, sign up for Bill Pay today and never get charged another late fee.
Set a Savings / Investing Goal
The key to financial stability is viewing things in the long-term, and there’s no better way to do that than by saving or investing your disposable income. Calculating a standard monthly saving or investing amount can help you plan your path to a new vehicle or home, or just help you build a solid safety net.
Eliminate Unnecessary Expenditures
This is the tough part. When looking over monthly expenses, most of us will notice that a larger portion than we would wish are unnecessary. This includes entertainment like a Netflix or Hulu subscription, a bill from a bar or restaurant, or maybe a new video game. Cutting back on these expenses can help you bring your budget closer in line with the desired percentages, and help you start saving effectively.
Budget to Grow
If your budget never changes, then how can you expect it to fulfill all the needs you have down the line? Adjusting your budget as you and your income continue to grow is essential to tackling big financial hurdles and ensuring you can still have fun. A 20% savings and investment amount may not be sufficient if you are looking to buy property, so you may need to increase it to 30% for a year or two so you can afford a substantial down payment. Similarly, if you are comfortable, you may decide to reduce your savings budget by 5% for a couple months if you would like to take a long vacation.
Small adjustments to your budget based on short- and long-term goals are essential to making the process rewarding. Keep the ideal in mind, but know that as long as you are disciplined, you can afford to stray just a bit from the “perfect” budget.
If you want to start creating your own personal budget, check out Equity Bank’s online budgeting tools. They can help you find the optimal path forward based on your income, living situation, and personal goals.
If you’d like to learn more about what Equity Bank can do for you, contact us today or visit your local branch to speak with one of our talented team members.