Cherie Knight, MA, ChFC, HR Projects Specialist
As COVID-19 restrictions reduce and we begin to go out to eat again, take care of overdue medical, dental, and vision appointments, or simply buy a fresh summer outfit to wear in public, now might be a good time to create or re-establish a household spending budget.
Financial stress can significantly impact our health. Developing a budget is a way to plan for and manage every incoming dollar to gain more financial freedom and achieve a life with much less stress. Here are some ideas for setting up your budget.
- Review Your Pay Stub. Start with your regular monthly take-home pay by reviewing your pay stub. Account for payroll deductions that already cover any of your budget items. For example, deductions for insurance benefits, parking, retirement plans, and other items will be included in your monthly budget as expenses. You can identify them in your budget and use your take-home pay to cover remaining budget items.
- Pick a Strategy. Choose a budgeting strategy like the 50/30/20, the envelope system, or the zero-based budget approach. For example, with the 50/30/20 plan, you spend 50% of take-home pay on basic necessities like housing, food, utilities, clothing, insurance, healthcare, and dependent care. Keep discretionary spending on your “wants” like eating out, new belongings, and vacations to 30% or less. Devote 20% or more to saving for building a starter emergency fund (3 to 6 months of take-home pay), voluntary retirement plan contributions, and paying debt down or off, especially high-interest credit cards or loans.
- Find a Tracking Tool. Keep track of your spending with a virtual budget tool like Mint, Every Dollar, or Good Budget. Or you can use an old-fashioned spreadsheet that you build on paper or your computer. Use a tool that you will stick with and is easy for you to use.
- Automate. Automating your regular bill and minimum debt payments, as well as minimum contributions to emergency savings and discretionary retirement accounts will help you to better manage the money set aside for your “needs” and avoid the temptation to spend it on “wants.”
For more ideas about building or updating your household budget, visit How to Make a Personal Budget in 6 Easy Steps, Budgeting 101, and Voya’s 6-minute video. Complimentary financial planning, including help with establishing a budget, is available from local UNM partners.