Trinity Hawthorne - Tips on creating a budget

In many cases, creating a budget is the easy part, however using the budget can be more challenging.

To begin your budget, make sure it includes these three categories:  income after taxes (net income), how much you are spending, and how much you are saving. Next, determine how much money is necessary to cover your fixed expenses - things such as a mortgage or rent, car payment(s), and utilities. For savings, a good starting point to work towards is to aside 10%. This can be directed into a savings account or retirement account, or any method that sets that amount aside for yourself. Once you commit to an amount for savings, you quickly learn what is left to spend. This strategy is called “paying yourself first”.

In addition to determining expenses and retirement savings, plan to prepare for emergencies by saving 3-6 months of living expenses. Setting aside emergency funds reduces the likelihood of dipping into retirement savings when an unexpected expense surfaces. If you are retired, consider keeping 12 months of living expenses in a money market or an interest-bearing savings account.

If you are anticipating a significant expense in the near future such as a vehicle purchase or the downpayment on a house, consider creating a sinking fund. A sinking fund is simply monies set aside for an intended purpose/use. Be sure to keep it liquid. A money market fund within a brokerage account may be a good option. If there are a few years until the expense is incurred, other investment options can be considered. Talk with your investment professional regarding other alternatives that will fit your needs.

It can be very beneficial to automate your savings and the payment of expenses. Establishing the direct deposit of savings from your paycheck can help you save more consistently with minimal effort. Consider setting up electronic payment of your fixed expenses. Remember that these payments will be automatically deducted from your bank account. 

Your circumstances can change from month to month. Regularly review your budget to ensure it reflects your current obligations, goals and desired lifestyle.