SearchIf you’re looking for ways to manage your personal finances, you don’t need special software or fancy equipment. Managing your finances is as easy as tracking spending amounts on a piece of paper and doing some simple math — okay, if you aren’t good at math, you may want to use a calculator. Tracking spending can help you gain a true picture of your monthly expenses. Although you may not want to record everything, in the long run, you’re just hurting yourself. Try these simple guidelines.
- Use the 50/20/30 rule.
- This rule helps guide the amount of money being spent in three large categories: essential expenses, financial priorities and lifestyle choices.
- Essential expenses = 50% of monthly income. These include housing, transportation, utilities and groceries.
- Financial priorities = 20% of monthly income. These include future savings and retirement contributions, current savings and debt payments. It’s generally recommended you have between three to six months of living expenses in your current savings to protect against unforeseen circumstances such as job loss, major auto problems, illness and short-term injury.
- Lifestyle choices = 30% of monthly income. This category is for personal/fun spending and includes things like cable, internet, phone, pet expenses, restaurants, entertainment (movies, bars, concerts) and shopping. Don’t make the mistake that items in this category are must-haves — most people don’t actually need cable. It’s a lifestyle choice if your budget allows.
- This rule helps guide the amount of money being spent in three large categories: essential expenses, financial priorities and lifestyle choices.
- Count net dollars only.
- When you’re budgeting, be sure to only count the amount of money you receive in your paycheck (the money available to you after taxes are taken out).
- Try using cash.
- Some people find it difficult to manage daily spending (expenses in the lifestyle choices category) when using a credit or debit card because it doesn’t seem like real money. Using cash enables you to actually see the money you’re spending and how much you have left for the rest of the pay period.
- Be very careful with credit card purchases.
- Many credit cards carry high interest rates, and it doesn’t take long to make several larger purchases and find yourself chasing credit card payments. A good rule to follow: if you don’t have the money in this month’s budget for the item, especially if it’s a lifestyle choice item, don’t buy it! For those of you who are skeptics — a $1,000.00 purchase at 10.99% interest will take you about 4.2 years to pay off at $25.00 a month — which includes an extra $251.18 in interest!
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