Setting a monthly budget, and using budgeting guidelines, can help you to set goals and plan for the future. Budgeting only takes a few minutes a day and allows you to keep track of your earnings and spending. The result can be greater savings and peace of mind. With some planning, and a knowledge of budget guidelines, you can make your budget stretch further and avoid going into debt.
Setting up a Budget
The first step in any budget is to determining your households' monthly income and expenses. This is the basis for the budget guidelines you will use. Determine your net household income – the amount you take home after taxes and deductions. This includes monthly take-home pay, interest, income from investments, etc. If you are self-employed or have different amounts coming in each month, average over three or four months. As of 2010, the self-employment tax rate is 15.3 percent, so a good guideline is to set aside that much of your income each month, plus a bit extra as a cushion.
Prioritize your saving by making a list of long-term goals, such as having money for retirement, and short-term goals, such as a new winter coat or a vacation. Use these goals as guidelines to determine the amount of money you will set aside each month. Liz Weston, at MSN Money, suggests that if you start saving around the age of 30, save 10 percent of your salary for basics, 15 percent for comfort and 20 percent to live well. To save for a child's college education, Weston suggests putting at least $25 a month per child in a college savings plan
So how much should you be spending each month on expenses? You may want to follow guidelines given in statistical website Visual Economics, using U.S. Bureau of Labor Statistics data about the spending of the average consumer. In 2009, average consumers spent just over 12 percent of their income on food, 18 percent on transportation, 7 percent on utilities, around 6 percent on health care, around 4 percent on clothing and around 34 percent on housing. Many lenders consider that anyone spending more than 30 percent of their income on housing to be spending too much, but the exact amounts you spend may change depending on your circumstances. You can begin by using these percentages as a guideline for what you should be spending on necessities.
The 60 percent guidelines
You may also want to follow the 60 percent guideline developed by Richard Jenkins at MSN. In Jenkins' plan, you allocate 60 percent of your income for all your regular monthly expenses. The remaining 40 percent can be used on your goals. These guidelines change depending on where you live; for example, you may need to spend more on transportation, but you can use these figures to set reasonable expectations for what you should be spending.
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