Budget your income

Budget your income

Happy Memorial day to everyone!

The questions asked by many is how should I budget my salary and where should I begin. This article is a guide for you to start budgeting your salary and how to do so.

My daughter is slowly understanding the value of money. She started doing chores around the house at an early age and for any major chores we have been paying her.  Plus the fairy god mother comes and leaves a couple of bucks for when her teeth fall. She has a wallet that my husband bought for her and she saves the money in her wallet, though that wallet is outgrowing the cash. Lol!

That is her savings and we negotiate the purchase of toys or prioritize the needs vs the wants with her based on what she has in her wallet. We also, have her count the dollars, the 5 dollars so that she knows how much she has.

 Teaching kids the value of money a young age is important. Well, why did I bring up the example of saving, it opens up a dialogue about really identifying your needs versus your wants and if you had an income where would you want to spend your money. Would you want to spend the money such that it compounds or would you like to spend the money on something that will not provide any returns?

As a parent, you want the ability to set aside funds for your retirement, for you kids college, use the money to save for a rainy day, such as an emergency fund as well debt payment.

In a recent article, about 57 million Americans have no emergency savings. What that means is folks are tapping into their retirements funds and using those funds as an emergency fund.

As an example say you make 50,000 dollars a year in income, the rule of thumb is as  follows:

1.       Essential/ Needed Expenses: This should be 50% of your income. These should cover any kind of debt, rent, mortgage, food. In this example, you would want to set aside 25,000 dollars towards day to day expenses plus debt. Groceries would fall under these.

 

2.       Non Essential/ Wanted Expenses: This should be 30% of your annual income, i.e. no more than 15,000 dollars should be spent towards the non essentials expenses such as eating out, concerts.

 

3.       Financial Goals: This should be 20% of your income. In this example it would be 10,000 dollars. This you would set aside for an emergency fund, kids education, retirement.

 

You can dial up the financial goals, based on how far you are from paying your debt and if you have the wiggle room to save more for your future.

 

Let me break down the example even further, on a monthly bases say Sara makes (@25% tax bracket) $3,125.00 per month.

 

Her Non Essential Expenses would be 30% of her take home pay, which in this case would be $937.5.

 

Her Essential expenses should be, $1562.5.

 

Her Financial Goals would end up being: $625

She could end up saving her money in retirement funds, college fund and/ or an emergency fund.

 

If you have any stories or comments on how you budget your income comment below. Would love to hear from you.

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