Many people traveled over the holidays. Some went to new places for the first time. This probably requires directions and maybe even a map. Whether you are still rocking the old school paper maps (highly underrated) or depending on the wonder that is Google Maps, there is one important piece that HAS to be known to get you where you want to be – your starting location.
If you (or Google) don’t know where you currently are, how can you get accurate directions to where you want to be? There’s always the old adage of “Go west, young man”, but if you are already west of your desired location, that’s not going to be helpful at all. You have to know your starting point.
So you’ve decided to get on top of your finances in the New Year. That’s great. Obviously, at the Center for Financial Resources, we are all for that. But where are you starting? How much do you plan to spend on every different thing you pay for? I mean, if we are going to set a New Year’s budget, we have to have an idea of an appropriate amount for each category, right?
Finding a starting place can be one of the most daunting aspects for people looking to put a budget together. I regularly get asked, “But how much SHOULD I be spending on all of these different expenses?”
That’s a great question and one that cannot really be answered easily. I’m going to give you some guestimates, but understand that these are JUST ESTIMATES. Your situation may be very different. These generally recommended amounts are a percentage of your monthly NET income, or what you take in after taxes, insurance, and all other deductions. Here we go:
Housing (rent/mortgage, insurance, taxes, maintenance) – 26%-30%
Transportation (payments, insurance, maintenance, gas) – 15%-20%
Food (groceries and eating out) – 12%-15%
Savings – 5%-10%
Medical – 0%-10%
Utilities – 7%-10%
Necessities/Incidentals – 5%-10%
Entertainment/Recreation – 2%-5%
Other Debt (loans, child support, alimony, etc.) – 0%-20%
Again, these are all ESTIMATES for you to work with. If you want to spend more than that in a given area, that’s fine. You just have to figure out which other categories you can take that money from and remember that you have to keep the donor category below the recommended amount.
“That’s great and all, but those are some pretty broad ranges. How do we fit it into our situation?”
And that’s where we go back to last year. Sure, the great Don Henley song “The Boys of Summer” has a line that states ‘don’t look back, you can never look back’. But he’s being nostalgic there. We, on the other hand, are talking about finances.
Go back through your statements from the last few months. It’s going to take a little work, but it will provide you a wealth of information. Break out each expense by category. Add up each category and then divide the total by the number of months you looked through.
For example, if you add up all of your grocery store and restaurant receipts from the last 3 months and find you have a total of $1682, we divide that by 3 months to get about $560 per month on food. If we use the recommendations, you should have a minimum household NET income of just over $3700 each month ($560 divided by 15%).
But what if your numbers don’t work out? Following our example, you may only have a NET household income of $3000 each month. Now you have a choice to make. You can either keep other spending categories a total of $700 lower than the recommendations to make room for your food budget, or you can find cheaper ways to feed yourself. (Hint: Eating at restaurants is EXPENSIVE!)
Yes, this is going to take some work, but I assure you it is totally doable! If you just aren’t quite sure about it, there are people willing to help. The counselors at the Center for Financial Resources help people track and set budgets every day. Regardless of what else our clients want to accomplish with their finances, it pretty much always starts with a budget. Budgets are that important.
You can schedule an in-person, phone, or online appointment by calling us at 605-330-2700 or by going to our website.
written by Breck Miller, Community Relations Coordinator
images courtesy Google and freedigitalphotos.net, respectively
LSS Center for Financial Resources
Consumer Credit Counseling Service | Housing Resources | Sharpen Your Financial Focus| Financial Fitness Education
705 East 41st Street, Suite 100 |Sioux Falls SD 57105-6047
605-330-2700 or 888-258-2227
Strengthening Individuals, Families & Communities