MARY ANN QUINN's Blog
If budgeting isn’t your thing, you’ll be glad to discover that it’s quite simple. There’s a way to categorize your spending and save money easily. If you learn the rule, it will become so automatic that you won’t even think about it. If you’re saving money for a home, this practice will be essential. Break your budget down into three categories:
- Living expenses
- Financial goals
- Personal spending
Half of your budget should go towards living expenses. This number includes all of the essentials like rent or mortgage, utilities, groceries, commute costs, and insurances.
20 percent of your income should go towards other financial goals like savings, investments, or paying down debt. Credit card bills, student loans, and other bills would fall under this category. This category is also where you’d save for your down payment, closing costs, and other expenses. This percentage can be adjustable depending on how much debt you have or how much you need to save for retirement.
The remaining 30 percent of your income can go towards personal spending. This category includes everything that you use your money for but isn’t a necessity. This percentage is also flexible. If your lifestyle doesn’t require you to use all 30 percent each month, you can indeed save more money.
A Clear Plan
These categories simplify your budget. Even if you make some adjustments to the numbers, the outline truly makes budgeting easy even for the most scatterbrained among us. It allows you to see where your money goes clearly. It also works no matter what kind of living situation you have.
The great thing about this budgeting plan is that you have some future needs built into it. Many times, when we budget, we think of our immediate needs and our shorter term goals. Saving for any occasion can never happen too early. You are able to not only focus on your current goals and the future.
First, determine your monthly income. This number is how much money you take home after taxes. From here, you’ll be able to split your money into categories by percentages. If your income fluctuates frequently, you’ll need to take an average of your monthly income to determine your numbers.
Next, you should take a look at your spending habits. These include everything from your morning latte to your monthly rent payment. From here you can make adjustments. Perhaps you need to look for a less expensive apartment. Maybe you need to cut down your weekly pizza to a bi-monthly purchase. Whatever you see in your finances, a simple percentage rule gives you the tools you need to become a saver and be well on your way to the purchase of your first home.
If it always seems like your money disappears as fast as you earn it, you're not alone. All too many people live from paycheck to paycheck -- even when their income is well above average.
Why is this condition so widespread? Well, the reasons are as varied as people's spending habits, lifestyles, and financial obligations, but there is one factor that is often overlooked: self-defeating attitudes toward money. Here are a few examples you may be able to relate to:
- "I don't have the time or patience to compare prices." The truth of the matter is that it doesn't really take that much time to do a few quick price comparisons when you're in the supermarket, department store, or on the Web. During the course of a typical week, you probably make dozens of spending decisions, many of them almost unconsciously. By simply increasing your awareness of how much you're spending and what the alternatives are (if any), you can often save hundreds of dollars a month.
- "People who use coupons are penny pinchers." Although the term "penny pincher" is frequently used to describe someone who's stingy or overly careful with their spending habits, some people consider it a badge of pride to be frugal and careful with their money. It's all a matter of perspective. There are numerous blogs, small businesses, and newspapers that have no reluctance about including the words "penny pincher" in their name While few people want to be thought of as cheap or stingy, frugality has different connotations. It's associated with being economical and thrifty.
- "I don't want people to think I'm cheap." This can be a tough self-defeating thought to overcome because it's often so deep rooted. However, if you're a compulsively high tipper or often feel obligated to pick up the check at restaurants (rather than splitting it with your fellow diners), this could be a contributing cause of your budgetary problems. Generosity is a wonderful thing, as long as it's not based on a desire to be liked, accepted, or approved of by other people. As a side note, concerns about being perceived as "cheap" is one reason some people don't take a closer look at their retail receipts, restaurant bills, and other invoices. Remember this: There's nothing cheap about being unwilling to pay extra for cashier or restaurant staff mistakes -- which are more common that you might think -- and unauthorized or redundant fees on bills.
One of the first and most important things that you should do when you buy a home is to be sure that you’re on top of your finances. Before you even begin the home search, you’ll need to be sure that you have money in the bank and know your credit score. What you really need is a plan.
Set Up A Savings Account For Your Future Home
Having a separate account set up just to help you save for your down payment and other home costs can be very helpful. Find a bank with a bit of a higher interest rate. Often, online banks are your best bet. If you’re able, set up automatic transfers from one account to another for a set amount each month. You’ll be saving before you know it!
If you have no idea of what you want, it will be difficult to understand what you need to do to get there. Typically, it’s a good idea to have 20% of a home’s purchase price saved for your down payment. Putting 20% down also helps you to avoid the additional cost of PMI, also known as private mortgage insurance. Once you have a goal, don’t look at the big picture. Break down your big goal for savings into smaller bits to make it less overwhelming.
Make Savings Automatic
We’ve already mentioned the idea of setting up an automatic transfer, but you can do even more. When you are gifted money, instead of spending it, put it in your home savings account. If you get a bonus from work, save it. If you get a raise, live off of your previous income and use the additional income for savings. All of these little actions add up fast. When you make savings habit, it’s easier to reach your goals.
See Where You Can Cut Costs
There’s probably plenty of places that you can cut costs in your budget. Sit down and see how much your expenses actually are compared to how much you actually do spend. Can you opt out of cable TV? Maybe you can reduce the speed of your internet connection, or find a cheaper cell phone plan. If you take a close look at your expenses, there’s probably plenty of ways for you to cut back and save.
Sell Your Stuff
We’re not talking about selling your essentials, but if you have things around your home that you’re not using, there’s a better use for them. You can probably get some extra cash for these items by selling them. It’s so simple to sell things on the Internet these days that you can make some money and get rid of unwanted things pretty easily.
With a bit of focus, hard work and diligence, you can save up enough money for a down payment on a home. Don’t forget to keep all of the other aspects of your financial life in order such as paying your bills on time and not opening new credit accounts. Good luck with your savings goals!