Thursday, October 23, 2014

Budgeting Basics From Money Savvy Living

This week I am excited to introduce you to Bella Home Goods guest blogger Gina from Money Savvy Living, living the good life on a budget. Gina has five ways to get your finances organized.

Does just thinking about your finances seem overwhelming? Are you living paycheck to paycheck? Do your bills keep piling up? Creating a budget and knowing your exact financial situation can help to make things more manageable and get you back on track. Many of the household items have probably increased in cost over the past few year, such as food, gas, healthcare costs, and other consumer goods, probably outpacing any cost of living raise that you may have received. These increases, while relatively small, can really start to squeeze your finances. So, in order to get to a point where your finances are manageable, you have to get a financial plan in place that takes into account your entire financial situation. A little bit of organization can take the frustration and confusion out of managing your money.

Steps to organize your budget and create a financial plan:
1.Create a budget—The first thing that you need to do is have a clear understanding of the money that you have coming in each month and how much is going out for expenses each month. Make a spreadsheet or list of all of your monthly income sources and monthly bills, or expenses.
•Income sources: wages, tips, alimony, child support, pension, IRA, SSI, investment income
•Fixed expenses—mortgage/rent, auto loan, insurances (health, life, auto, home), 401k/IRA contribution, personal/signature loans
•Variable expenses—utilities, food/consumer goods

Add up all of your income. Add up all of your expenses. Once you subtract all of your expenses from your income, the amount that is left over is your disposable income. From the disposable income, you can set aside additional money in a savings account, have some spending cash, or just have money set aside for any unexpected expenses that pop up during the year.

*Notice that 401k/IRA contribution is listed as an expense. Even though it is optional, look at it as a necessary expense that you must budget in each month. Making this a part of your budget each month will set you up for financial freedom in retirement.
2.Limit credit card use. Only charge on your credit cards each month an amount that you are able to pay off. Don’t let the balance carry over month after month; most credit cards have high interest rates that compound daily. Paying only a minimum payment will take years (maybe even decades) to pay off.


3.Use cash when possible. After creating a budget, it is easy to see how much money is left over each month that is considered expendable. Obviously, using cash, it is impossible to overspend. Once the cash that you have set aside for the month is gone, the spending stops.


4.Be an informed consumer
•Clip coupons—also look for stores that offer to double your coupons.
•Purchase items when they are on sale. Most stores have websites, which have weekly ads, and email sign-ups, which send out coupons, promotions, and savings events information.
•Comparison shop—the internet makes it easy to look up the price of an item at multiple stores or online shops to figure out where it is offered at the best price.

5.Save for the future
•Savings account—even though interest rates are low now, putting money into a savings account is still a good idea. If you set up direct deposit, that money will go there before you get your net paycheck; it is much easier to save when the money is taken out of your paycheck directly.
•Retirement account—if your employer offers a 401k or other similar retirement plan, you want to contribute to the maximum matching level. If you employer matches to 4%, that is the level to which you want to minimally contribute, otherwise, you are turning down “free” money.
•Emergency Fund—it is suggested that you have at least six-months salary set aside in case of a life emergency, such as accident or loss of job. These funds can help get you through if something were to unexpectedly happen; you will still be able to pay your monthly bills, even if there isn’t any current income coming in.
•Open a Return of Premium Life Insurance Policy—While this type of life insurance policy provides protection for a certain period of time, it also provides a sort of forced-savings account. If the benefit is never used, policy holder gets all of the premiums back.



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