A sound spending and savings plan is the foundation for your path to financial fitness. One significant challenge to setting and reaching goals as well as general money management is a lack of financial organization. Many people feel overwhelmed and don’t know where to even start. The first step toward developing a realistic monthly budget is examining your past finances to create a plan for all future spending and saving. During this process, you may find that certain financial behaviors may have kept you from achieving your financial goals in the past.
Recommended Budget Guidelines
Housing
Spend no more than 35% of net income on housing. Depending on whether you rent or own, that can include: mortgage/rent, utilities, insurance, taxes, and home maintenance.
Savings
Save at least 10% of income throughout your working life. Make sure you have three to six (3-6) months’ income in an emergency fund before you start saving for other goals.
Transportation
Spend no more than 15% of net income on transportation. That includes: car payment, auto insurance, tag or license, maintenance, gasoline, and parking.
Debt
Spend no more than 15% of net income on all other consumer debt: student loans, retail installment contracts, credit cards, personal loans, tax debts, and medical debts.
Other
Spend no more than 25% of net income on all other expenses: food, clothing, entertainment, childcare, medical expenses, tithing/charity, and vacations.
Adjust Your Plan
If the amount you are now saving falls short of the amount you need to save to reach your goals, here are some questions to ask yourself:
• Are you paying yourself first by putting away at least 10 percent of your after-tax income?
• Could you increase the amount you’re saving by earning more or spending less?
• Did you set reasonable, achievable goals?
• Could you delay the target date of any of your goals?
You should reevaluate your spending and savings plan annually, or whenever there is a big change in your financial wants and needs. Remember that a budget is simply a priority list – by following it you are ensuring that your money is used to acquire the things, or reach the goals, that are most important to you.
To get you on track to achieve your financial goals Adrian Hedwig, CFS Financial Advisor at Salal Investment Services, provides a full range of investment products and services. Whether you want to develop sound solutions for your retirement, generate income, or protect your assets through insurance, Adrian can provide guidance. To learn more, arrange a convenient time for a complimentary, no obligation appointment.
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