One of the first steps in taking control of your money is to put together a monthly budget. A budget can help you save money and get a handle on your expenses.
Your budget should be broken up into the following sections:
- Fixed costs
- Short-term savings
- Long-term savings
- Fun money!
Fixed Costs
Your fixed costs are amounts that don’t change from month-to-month such as your mortgage or rent, a car loan, and your cell phone bill.
Other costs vary each month but will generally average out to be the same, such as your grocery bills and utilities. If you’re looking for somewhere to save on fixed costs, groceries are one of the few areas of you can you have a little wiggle room.
Fixed costs will likely take up to 50 to 60 percent of your income.
Short-Term Savings
Short-term savings are exactly what they sound like – money you’re putting aside to cover big expenses shortly. This money can be used to cover everything from vacations to a new laptop. The key is that they are an extra item you want or need, and you should save up for them.
Not expecting to make any major purchases in the next few months? That’s great – but it doesn’t mean you should avoid putting money into short-term savings. Any money you don’t use for expected purchases can be used to help build your emergency fund in case you suddenly lose your source of income.
For short-term savings, you should be putting aside 5 to 10 percent of your income.
Long-Term Savings
Long-term savings are the opposite of short-term savings – this is money that you’re putting aside for the future. Whether that’s a down payment for your house, your retirement, or your children’s education, it’s important to make sure you put aside money for your long-term goals.
It can be easy to let this part of your savings go, as the goal and rewards aren’t immediate. But unless you have a real financial crisis, it’s important to make sure you save up for your long-term goals.
Long-term savings should be 10 percent of your income.
Fun Money!
Now we get to the fun part. Part of the reason we like to earn money is that it buys us things we enjoy! Whether that’s dining out, getting the latest video game, or buying some new clothes, it’s important to spend some of your hard-earned money on something pleasurable.
Spending money on things you enjoy shouldn’t be seen as a luxury but as a necessary investment in your physical and mental well-being.
You can spend anywhere between 20 to 35 percent of your income on the fun stuff. This is an area where you definitely have some wiggle room, so if you end up with an unexpected expense or want to boost your savings, you can temporarily cut back in this area.
The Takeaway
Having a budget may seem constraining, but it really isn’t. Having set percentages to spend your money on, you actually give yourself the freedom to spend money on something pleasurable without feeling guilty! And you know that you’re still saving money for your long and short-term goals.
