You work hard for your income and you deserve to know where your money is going. However, as many as 50% of Americans say they do not maintain a budget. A budget is a plan for tracking and prioritizing your spending over a specific period (usually one month at a time). Without a budget, you will be in the dark about where your hard-earned money is going—and may be left wondering why your finances aren’t adding up at the end of the month. In this newsletter, we will cover some of the basics of budgeting and lay out a few simple actions you can take to start budgeting and taking control of your finances.
Why budget?
The foremost benefit of budgeting is to make sure you are not spending more than you are making. If you don’t keep track of your spending relative to your income, you are in danger of over-spending and sinking into debt.
Budgeting also empowers you to properly allocate your funds by categorizing and prioritizing your spending. This allows you to make sure your needs are covered, while understanding how much will be left over for your wantsand your savings.
The “50 / 20 / 30” rule:
A common rule of thumb for budgeting is that 50% of your income should be used to cover necessities, 20% should be committed to savings, and the remaining 30% can be spent on your “wants”. Let’s take a quick look at each of these categories…
Needs (50%):
The needs category includes the essentials for survival like rent and groceries. Minimum credit card payments can also be included needs—because if you don’t make them it can damage your credit score and affect your financial future. The first priority of budgeting is to ensure your needs are covered.
Savings (20%):
The savings category includes any type of emergency savings, retirement savings, or investment accounts for the future. Paying off debt—like making additional credit card payments—can also be included in the savings category. Paying down the principal balance of your outstanding debt can reduce the interest you will pay over time, thereby saving you money on future interest payments.
Wants (30%):
After 50% of your income has been used to cover essentials and 20% has been committed to building your savings, 30% will be left over to spend on your “wants”. This category includes items that may be important for your quality of life and well-being, but are not absolutely essential for survival. Some examples of “wants” include going out to dinner, entertainment expenses, or upgrading your wardrobe.
Steps to starting a budget:
Budgeting doesn’t have to be overly complicated, and anyone with an income can do it! Here are a few simple steps you can take to get started:
1. Know your total monthly income.
The first step to budgeting is knowing exactly how much is coming in. What we need to know is our total monthly after-tax income. (This is normally what we receive in our paychecks.)
2. Track your spending for one month.
To begin budgeting, we also need to understand our current spending habits. This will give us a baseline for where our money is currently going so we can see what adjustments need to be made.
3. Create a monthly plan for your future spending!
This is where we categorize and prioritize our spending to make sure our income is properly allocated to our needs, savings, and wants. A simple example of a monthly budget can be seen below:
Sample Budget:
Monthly Income: $3,000
| Needs (50%): | $1,500 |
| Rent | $700 |
| Groceries | $300 |
| Car Payments | $300 |
| Gas | $100 |
| Minimum Credit Card Payments | $100 |
| Savings (20%): | $600 |
| Emergency Savings | $250 |
| Extra Credit Card Payments | $200 |
| Investments | $150 |
| Wants (30%): | $900 |
| Dining Out | $350 |
| Entertainment | $300 |
| Clothes and Shopping | $250 |
There’s an app for that:
After we have planned our monthly expenses, we still need to track our spending. This can be challenging because it requires time, diligence, and attention to detail. Fortunately, there is a full marketplace of user-friendly apps that can assist us with our budgeting needs. A couple popular apps that may be worth checking out are Mint and YNAB (You Need a Budget).
When your income isn’t enough:
Budgeting is an important step toward financial empowerment and helps maximize the probability that our income will comfortably cover our monthly expenses. However, as we have all recently experienced, unexpected events can occur and throw off our financial equilibrium. Perhaps a spouse is laid off—reducing the household income—or an accident to our home or automobile creates additional needs. This is why it is critical to allocate a percentage of our monthly income to building our emergency savings. However, the reality is that most Americans do not have enough savings to absorb a financial shock.
How VIVA can help:
When a financial emergency occurs and your income is not sufficient to cover your needs, it is vital to have a source of affordable credit. For these scenarios, VIVA Finance offers personal installment loans that are designed to cover a variety of financial necessities. Eligibility with VIVA is based on employment—instead of credit score—thereby enabling working Americans to obtain financing regardless of their credit history.
If you are in need of affordable financing, you can apply for free at www.viva-finance.com to see if there is an option that is right for you. If you have any questions, please give us a call at (678) 685-8834 and a team member will be happy to speak with you.
Thank you for being part of the VIVA Finance community and we look forward to serving your financial well-being.
Sincerely,
The VIVA Team
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