There are a few things that we, as adults, might wish that we had learned in school. Car loans, mortgages, and taxes are all areas of knowledge that can have a huge impact on our finances. Another aspect of responsible spending that doesn’t get addressed as often is creating and maintaining a household budget.
Without a well thought out budget, your spending might not allow you to attain certain financial goals. If you research how to create a budget, there is almost too much information to sift through. Mostly, budgeting recommendations provide very basic advice that could pertain to most individuals.
When it comes to creating the most effective budget for you, however, you’ll need to look beyond basic advice. Here are three ways to go beyond budgeting 101 and tailor your focus to your specific situation.
1. Research Benefits Specific to Your Select Group
For those who work as an employee for a private employer, benefits and budgeting might be simple. Once you figure out the math with your salary, health insurance, and retirement account, you split up the extra amongst expenses. If you fall outside that basic category of employment, however, things get more complicated.
If you are self-employed, budgeting will need to factor in business goals and self-employment expenses. There are self-employment taxes to consider and options to weigh relating to tax implications of different entity types.
Government jobs also have their own sets of nuances to consider. While pensions are quickly becoming a thing of the past in the private sector, many government jobs still offer them. If a pension is unlikely to completely fund your retirement, you’ll want to budget for other options. Whether that’s funding an IRA or acquiring rental investments, make sure you allow for that.
If you’re an active military service member or a veteran, there are even more variances to factor into your budget. Items such as Tricare, disability payments, and pensions may vary according to rank and years of service. Different payments also hit during different times of the month or year. To make budgeting easier, you can use veteran-specific financial calculators and pay charts available on sites such as veteran.com.
2. Create Stepping Stones to Bigger Goals
Figuring out your long-term financial goals is a great starting point to plan your spending. Making the translation from goals that will hopefully occur decades in the future to a monthly budget can be difficult. To bridge the gap, create smaller goals that serve as stepping stones to ensure you’re on track for your larger goals.
For example, working out a monthly budget that can help you retire at age 60 sounds like an exercise in futility. Figuring out how your spending can enable you to put $25k in retirement within five years, however, is more achievable.
You can look at your specific situation and what beats you expect your life to hit between now and your long-term goals. If you want to be able to pay for your kids’ college education, you can set up 529 accounts for them early. That way, you can set certain funding goals every few years and see how that translates into monthly amounts. Also, you can adjust those amounts at each check in based on how well the 529 investments have been performing.
3. Allow Wiggle Room, Even in Lean Budgets
Even if you whittle down your spending to the bare minimum, you still need to make sure to allow for emergencies. Popular finance advice will sometimes give a blanket recommendation of socking away three to six months of living expenses. That’s great advice in an ideal world, but many people do not have the income levels to support this practice.
To figure out your minimum savings level, a good place to start is allowing for unexpected vehicle and health expenses. If you have two vehicles and have two adults that need to drive to work, you should have enough savings for two repairs. If you have two vehicles but could make do with one, you may not need to save as much for vehicle expenses.
For health savings, take the health history of yourself and other household members into consideration. If you have insurance, you should keep a goal in mind to save back at least the annual out-of-pocket max. For a single person, this amount is usually about half of the amount of family coverage.
If you don’t carry health insurance, your savings recommendations are going to be more subjective. In general, you’ll want to have enough saved up for at least one health emergency. If this is a stretch, you’ll need enough wiggle room in your monthly budget to allow for a payment plan. Most hospitals have options such as low-interest payment plans if you are unable to pay a bill in its entirety.
It’s All In The Details
Applying general budgeting concepts to your spending activity is a step in the right direction toward financial success. When it comes to long-term results, however, small details can have big consequences. So to create the greatest impact from your budgeting efforts, dig deep and tailor your plan to your exact situation.