A 2020 survey suggested 7% of Americans were wealthy enough to not need a budget. That implies that the rest of us (93%) do. Last Board Brief, surveys suggest about 85% of Americans either don’t budget or cannot maintain their budget.

WHY?
For the most part, people don’t feel the need to budget when they should, people have set unrealistic budget expectations, or they have had an unexpected event that caused them to exceed their budget.

WHAT TO DO?
There are several metrics for developing a budget. If you are starting out or if you have landed in a bad spot, financially speaking, a place to start is to use what financial planners call the 70-20-10 rule.

Use 70% of your net income on essential needs and non-essential wants.

• Needs - Housing, groceries, utilities, insurance and minimum debt payments
• Wants - Entertainment, dining out, subscriptions and hobbies

Use 20% of your net income for building long term wealth and financial security.

• Savings - Contributions to an emergency fund, a high-yield savings account, or investments for a down payment on a home.
• Debt Repayment - Paying down high-interest debt like credit card balances.

Use the remaining 10% for financial growth or charitable giving.

• Donations - Charitable giving.
• Investments - Investing in a retirement account like a 401k, 403b or IRA.

If your budget exceeds your income, (for example- your needs and wants exceeds 70%), you need to change the things you can control. In this case, cut back on the things you want until your budget allows you to increase spending in that area.

WHAT TO DO?
If you have high interest debt, like carrying a balance on a credit card, paying that debt off as soon as possible (and not adding to it) is the best thing you can do with your income. If you qualify, get a lower interest loan and pay the credit card balance off entirely.

If you are a teacher or have access to the District’s 403b retirement savings plan, you absolutely should be contributing to it to the extent you can, especially if there is an employer matching contribution.

There are pros and cons to this budget plan, but the major benefit is it allows flexibility within each discipline. If your needs are met on a given month (within the 70% category) you may want to reward yourself and splurge a little or to allocate more that month to one of the other two categories.

The key is to be disciplined. The major aim is to get your spending under control, to move away from unnecessary or costly debt and to grow your wealth, which can lead to financial freedom.

In the next Board Brief, we will look at another budgeting and financial planning tool.

OUR ADVICE
Most of us do not have unlimited financial resources. We need to be purposeful about them to build wealth that leads to financial freedom.

Whatever your financial need, we're here to help