Determining how much to spend
If you have never created a budget for cash expenditures or attempted to live on one it may seem like a daunting task at first. But real financial security is nearly impossible to achieve without an honest, workable budget in place. There are some important factors to consider when you put together a realistic budget. Knowing and following these guidelines can make sticking to a budget far easier. It can also significantly increase your chances of success when it comes to managing your finances.
Many financial experts recommend the 50/30/20 plan for allocating how much you should ideally spend and save. And again, remember that this is the ideal situation and does not always coincide with the financial reality of your circumstances. But it is certainly worth understanding and using as a goal to get (or keep) you headed in the right direction.The 50/30/20 plan was first proposed by Elizabeth Warren in a book she co-authored entitled "All Your Worth: The Ultimate Lifetime Money Plan". Simply stated, its main financial components are these:
- After calculating your after-tax income, review your budget. Your needs should be limited to 50% of whatever your income amounts to. What constitutes a need? A home or apartment, utilities, food, medicine, perhaps a car or quick cash loans. These are true needs that affect your quality of life.
- Ideally, your wants should make up no more than 30% of your after-tax income. Many people have a difficult time differentiating between a "want" and a "need". Access to 500 cable channels is not a need. A roof over your head is. Wants include taking a vacation, overspending on clothing and other items that aren't truly necessary, and dining out at restaurants.
- The remaining 20% should be spent on savings and debt repayments. Contributing to an emergency fund and retirement accounts should always be a priority. If you have a car loan, credit card debt, and/or a mortgage, the minimum payment on any of these is a "need". Any extra payments you make are considered "debt repayments".
As stated previously, the 50/30/20 financial plan is an ideal goal to work towards and budget for. There are also other helpful guidelines which you should consider when you are going over your finances and putting together a quick cash loans budget.
- Take your cost of living into account. Obviously the cost of living can vary greatly depending on where you live. If you reside in a city such as New York or San Francisco your costs for housing and other necessities are going to be more than if you lived in a smaller town. When you are arriving at numbers for your budget, be realistic. If you set aside $400 in your budget for food but spend $700, you are doomed from the start.
- Consider your own individual situation. If you have a large family, it makes sense that you will pay more for groceries than if it were just you or you and your spouse/partner. For a budget to work, it's crucial to be honest when formulating your specific numbers. If one area of your budget takes more of your income than you realized, either cut your expenses in that area or try to find other expenditures to pare down.
- Explore ways to cut expenses in every category of your budget. Have big "dining out" expenses? Limit the number of times you go out to a restaurant. Or take your lunch to work. Have a mortgage or rent payment that is choking your budget? Consider moving to a less expensive place (or get a roommate, if the situation allows it). Little things add up. Every dollar you save on one thing can be put towards savings or paying off debt or increasing what is available for a true "need" category.
- Consider a lifestyle change if it gives you breathing room. Reduce your expenses. Learn to live with less. If you and your spouse/partner are self-employed and your health insurance coverage is eating a huge share of your income, it might be time to consider one of you getting a full-time job with benefits. Circumstances change and life is fluid. What's the point of having a big house and lots of possessions if you struggle each month to make ends meet? Decide what's really important and make changes accordingly.
- Pay yourself first. This is a hard concept for many people to grasp. Contributing to a savings account should be a part of your budget each and every month. If you are lucky enough not to have credit card debt or other outstanding quick loans and financial obligations, put that extra money into an emergency fund or retirement account. Don't consider leftover income each month as something to be spent frivolously. Savings can be as easy (and painless) as establishing an automatic deduction from your paycheck directly into a savings account. You never see the money and don't have to think about it.
Determining where and how you spend your money is an important part of successful budgeting. Smart money managers understand that a budget must reflect your income and expenses in a realistic manner. Living beyond your means is a recipe for financial disaster. Remember, a budget doesn't exist that can compensate for overspending.