Budgeting can be an art! It is very important, especially if you are saving for something big, like a new home! Due to the importance, we wanted to make sure you are familiar with the process. Last week, we helped walk you through the first part of creating a budget – writing all of your assets, debts, incomes, and expenses down.
Now that you have that, you need to track what you spend. You should do this for a minimum of one month before you develop your budget. By doing this, you will be able to create a budget that reflects your lifestyle if you are able to. You can also track it for a few months and then take the average. If you typically use one credit card for payments, most credit card websites have this feature within their website. That will make it even easier for you!
Next up is deciding what type of budget plan you want to work with. How aggressive do you want to be with saving funds? One of the most common plans is the 50/30/20 Budget Plan. This plan incorporates 50% of your net income going on what you absolutely need and cannot live without. This includes: your house, food, utilities, car, medical, insurance. After that, 30% of your income goes toward things that you want (but can live without.) This includes entertainment, new clothes, eating at restaurants, etc. The 20% portion of this is very important if you are saving for something big, like a new home. 20% of your income goes toward reducing your debt if you have any or saving your money.
This is just one example of a budget plan. There are many other options out there. We can briefly go over them with you if it is something that would interest you.
The best part of budgeting is that it is a process that evolves with your lifestyle and your finances. If you find a particular plan not working for you, change it the next month. If you want a budget to save for a new home, we would be happy to talk to you about what type of mortgage you might qualify for and how much of a down payment you might need. This will help you with figuring out your budget.