It’s never too late to create a monthly budget. When you set aside the time to track where your money is going, you establish a clearer picture of where you stand on day-to-day expenses. Below are five simple steps to help you increase your control of your financial future.
Add up what’s actually landing in your bank account each month from each spouse’s salary. Only include what’s left after taxes and any other payroll deductions, such as retirement contributions and health care premiums. Remember to include any income brought in from side businesses. Finally, be sure to set aside money to pay taxes for any 1099 work.
Next, write down monthly rent, mortgage payments, daycare, groceries, utilities, car payment, insurance, and any other fixed expenses you accumulate each month. Usually these expenses are inflexible, but they’re fairly easy to map out as they don’t change much from month to month. Generally, fixed expenses should comprise about 60 percent of your budget.
This category includes saving towards short- and long-term goals, from a family vacation this summer to your retirement decades from now. In this step you’ll want to set up an emergency fund and allocate the amount of money you are putting toward your retirement savings, accelerated debt paydown, and your kids’ college tuition funds, as well as your disability income and life insurance premiums. Overall, about 20 percent of your income should be dedicated to savings and investing. This is also the place to list any contributions you are making to 401(k) plans, IRAs, or 529 college savings accounts.
This category covers the money you spend on having fun, such as eating out, attending entertainment events or sports activities, or going on vacations. If it feels challenging to calculate an amount for this category, try adding up what you spent on everything that fits into this category over the last three months to determine an average. Discretionary spending should generally come out to no more than about 20 percent of your overall income.
Take your family’s total monthly take-home pay from Step 1 and subtract the combined total of your fixed expenses (Step 2) and the amount set aside for goal funding (Step 3). The number remaining is what’s available for your family’s discretionary spending. If it’s higher than the discretionary amount you came up with in Step 4, that’s great. Your family is living within your means, and you might even have a little extra cash to apply toward funding one of your goals more quickly. If you need help creating a budget and assessing your savings, a financial advisor can help you determine how much to put toward these goals and effective financial strategies so you know that you’re on the right track.
Lynn Bowser, managing director for the Lake Norman office of Northwestern Mutual, has been an advisor with NM since 2014 and has established herself as a leader with Northwestern Mutual. As a successful woman in a male-dominated industry, Lynn has worked to pave the way for future women in the financial field. Originally from Syracuse, her family relocated to Huntersville for warmer weather and the opportunity to make an impact. Her passions surround her family, friends, and empowering women to take control of their financial destiny. You can reach Lynn through email or by visiting her website at lynnbowser.nm.com.
