Financial Fitness: Make your money more manageable

Photo credit: GotCredit (Flickr user)

By Patrick Sochacki, reporter.

Welcome back to Financial Fitness!

When it comes to a budget, should we worry about having one that is consistently present, or can it just be done mentally? Is it that important to make sure you have your finances in order anyway?

Q Beckman, professor of economics at Delta College, is an authority on these matters.

“A budget is an absolute necessity for success in personal finance,” says Beckman. “It holds your feet to the fire of your own goals and aspirations. Without a budget in place it’s far too easy to make spur-of-the-moment purchases and then let yourself ‘off the hook’ for the fiscal indiscretion.”

To get us started on what a budget should look like, let’s go again to Beckman: “Overall, the general guideline is the ‘50-30-20 Rule:’ 50% of income on bills/necessities, 30% as discretionary income, 20% as savings.”

In general, saving is the number one priority. An emergency fund is the first step in that savings priority.

How much should we be putting away for an emergency fund? Beckman has some advice here: “Have an emergency fund of 3-6 months’ income saved. In the time it takes to put away this emergency fund, you’ll be so used to the savings that it won’t take any additional effort to keep saving it.”

After saving, you should focus on the necessities and bills. As mentioned, these should consume roughly 50% of your income and always be budgeted for. The necessities and bills include food, shelter and utilities, basic clothing, and transportation.

Once your necessities are covered, you can start to pay back any debt you owe. Whether that debt is student loans or credit cards or anything in between, it is single-handedly the most important thing to focus on after savings and necessities.

Debt always carries interest and interest compounds very quickly over time, so letting it get away from you can only spell trouble.

“I use any ‘leftovers’ from budgeted funds to make additional payments to credit cards to pay them off sooner, rather than add those dollars to my savings,” says Beckman. “It’s a better return for me to reduce a debt where I pay 25% [in interest] to someone else than to make 2% [interest] on the saved funds.”

Now that you have some idea of what to be budgeting for, the idea is to figure out the best way to design a budget for yourself.

Beckman gave me some very poignant advice for a solid way to budget in today’s world: “I use a budgeting app that is linked to my checking account, credit cards, mortgage, investments and credit score. I was able to set up my budgeting guidelines after my first month of spending, and after that the app keeps an eye on what I’m doing and sends me push notifications if I’m nearing the cap on a category’s budget or if anything weird happens in any of my accounts.”

An exceptionally important aspect of budgeting for financial fitness is also the reward. When you reach a milestone like paying off a credit card or loan, then take that next month’s debt payment and get yourself something nice.

Beckman was adamant about this in stating: “If you never reward yourself for the hard work you’re doing in staying financially responsible, you’ll get burned-out on the idea and start slipping away from your financial plan. This reward aspect is very important.”

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