The State of Americans’ Financial Wellness
Many people in the United States aren’t on solid financial footing, which can cause worry and discomfort. According to a PWC survey, financial stress is at its highest in years, and Millennials are feeling it more than others. A 2015 Federal Reserve Report surveyed Americans to check the pulse of our nation’s financial wellness and revealed some alarming statistics:
- 24% of those surveyed said their household experienced a financial hardship within the last year leading up to this survey, most from health-related expenses.
- 47% of respondents said they wouldn’t be able to cover an emergency expense of $400, or would either need to sell something or borrow money to pay for it.
- 22% of respondents reported that they spent more than they made within the last year.
- 63% of those surveyed said they saved at least some money in the last year.
Calculate Your Net Income and Expenses
The first step toward creating a simple budget is to figure out how much money is coming into your household, and how much money is going out. Your gross income is the amount of money that you earn before taxes and other deductions such as health insurance are taken out of your paycheck. What you’re left with is your net income, or take-home pay.
Your expenses will include electricity, phone plan, mortgage or rent, food, gas, vehicle payment and other regular expenses. It’s a good idea to break these into fixed and variable expenses to help you begin to plan a budget. Fixed expenses are the bills that tend to be around the same amount each month – like your housing or daycare – while variable expenses change each month.
The first goal of creating a budget plan is to make sure you aren’t spending more than you’re bringing in each month, and that you have enough left over to save for the future, and have a little fun.
Put Your Budget in Writing
If you’ve never set up a budget before, a good way to start is to create a budget spreadsheet. Most spreadsheet programs come with built-in templates that can help give you a head start by having the basics outlined and formulas calculated. There are also apps and computer programs that help you create a budget plan. Whatever you decide, you’ll want to have your budget in writing or available online so that you have something to stick to.
Next, you’ll want to categorize all of your fixed and variable expenses. Some categories to start with include housing, clothing, entertainment, food, and vehicle expenses. This will help you to see how much you’re spending in each category, and help you see if you are overspending in a certain area.
Did you know that Microsoft Excel even offers a Family Budget Planner template? They have done this work for you by breaking up the expenses into these common categories:
- Housing: all your bills for mortgage/rent, gas or oil, electricity, water/sewer, cable, maintenance, etc.
- Transportation: car payments, bus/taxi fare, insurance, fuel, maintenance
- Loans: personal, student loans, credit cards
- Insurance: home, health, life, etc
- Entertainment: going out, games, music, etc.
- Food: groceries, restaurants
- Children: medical, clothing, tuition, lunch money, child care, toys, school supplies, etc.
- Personal care: medical, clothes, dry cleaning, gym membership, etc.
- Taxes: federal, local, state
- Legal: alimony, lawyer fees, payments
- Pets: food, vet/medical, toys, etc.
- Savings/Investments: retirement, investments, savings, college, etc.
- Gifts/Donations: charities, church
Set Your Savings Goals
Now you’ll want to think about your short and long-term goals. Do you want to buy a house? Go on vacation? Save up for your children’s education or pay down credit card debt? Outlining your goals and how much you’ll need to get there is a great way to start. For example, if you are saving up for a $3,000 vacation, you’ll need to save $250 each month for the next year.
There are many different theories on how much you should allocate to various categories in your life. Some suggest putting aside 10-15% of your net income towards your priority goals, like investments, savings or paying down debt. That might not be realistic for many people, so the best advice is to save as much as you can so you can enjoy your life instead of just pay your bills.
Review Your Spending
Now you’ll want to figure out how much you’ve been spending in each category. A good rule of thumb is to follow the 50/20/30 guideline: allow yourself 30% of your budget toward variable or flexible spending items, 50% toward your fixed expenses and 20% toward your goals. This is called the 50/20/30 guideline.
If you notice that you’re spending way too much on dining out, give yourself a smaller restaurant budget each month. And, if you see that you’re spending more than you’re taking in, or living paycheck to paycheck, you’ll want to get creative on how you can earn more money, or cut down on expenses.
Use Online and Mobile Banking to Automate
Now it’s time to put your budget into action. If you know you need to put aside a certain amount of money each month into your savings account, set up an automatic transfer between your checking and savings accounts. You can also pay bills with ease by scheduling via Online Banking or our CUONE Mobile app.
Building a budget doesn’t need to be complicated but is an essential part of being a responsible adult.