Tracking where your money is spent is the first step to creating a budget. A budget finds the balance between your needs and wants, your present and future, and your current enjoyment and your long-term goals. [1]
Budgets are the roadmap to how you will fund your lifestyle, your retirement, your savings, and your goals. But if you are not aware where your money is outflowing to- your spending, even when its within your resources coming in, could be misaligned with your financial goals. Tracking allows you to be intentional with your spending.
If you are ready to start taking control of your money- download our spending track sheet-here.
At first, simply track where you are spending your money. Document it for a full 30 days. At the end of the month, you can review and consider where your spending does not align with your goals, needs, and wants. You now have the data to see where you need to reduce or increase your spending and savings. Then it is now time to create a monthly budget and a long term plan.
Here are some guidelines for how much of your money should be allocated towards different expenses.
- Household expenses should not exceed 30% of your gross income.[2] This percentage should include utilities and other monthly home expenses.
- Total value of cars should not be more than 50% of your annual income.[3]
- 15% of your gross income should go to retirement savings each year.[4] This percentage will change depending on when you started saving and your dollar amount goal for your retirement fund.
- There should be 3-6 months of living expenses in your emergency fund.[5] This amount increases if you are a business owner to 6-12 months’ worth.
Remember by tracking your expenses and really digging into where your money is going you can have the information you need to make a thoughtful budget with your goals as clear priorities.
If you need additional help with creating a holistic plan for your financial life, contact us.
Reach Scarlet Oak Financial Services at 800.871.1219 or contact us here.
This material is prepared for informational purposes.
Sources
[1] https://www.rockethq.com/learn/credit/personal-budget-what-is-it-and-why-do-i-need-one
[2] https://www.cnbc.com/2018/06/06/how-much-of-your-income-you-should-be-spending-on-housing.html
[3] https://www.daveramsey.com/askdave/other/how-much-car-is-too-much
[4] https://www.cnbc.com/2019/09/30/salary-needed-to-save-15-percent-of-your-income-and-retire-with-1-million-dollars.html
[5] https://www.cnbc.com/select/how-much-to-save-in-emergency-fund/
