Financial security isn’t as scary as you think, and it doesn’t require you to put prison bars on your budget. It’s possible to build your savings without sacrificing every vacation and your morning coffee. When you determine your fixed needs, control your variable needs, remember your goals, and prune back your wants, you’ll be amazed at the freedom you find.
Take the opportunity as you read over this article to reflect on your own spending habits. Ask yourself how you might improve. If you’re not sure
where to start or want some more in-depth advice, contact your Wealth Manager and they would be happy to help.
1. Determine your “Fixed Needs”
“Fixed needs” are things you need, which can’t be easily trimmed down to make room in your budget. A few examples include housing costs, car payments, utilities, doctor bills, loan payments, and phone bills. These expenses make a good framework for your budget, because they rarely fluctuate. This being said, it’s important to note that there are still things that can be done to minimize these costs.
If you own your own car or home, keep an eye on interest rates and consider refinancing when they decrease. Depending on your insurance, bundling your home and auto policies can be a good way to maximize savings while maintaining coverage. If you’re not sure how to navigate these changes or how adjusting your fixed needs costs may affect your financial plan, consult your Wealth Manager.
2. Round Up Your “Variable Needs”
“Variable needs” are needs like gas, clothing, and food that can vary depending on seasons, habits, and other factors. Determine the least amount you can spend in this category, then round up to account for potential variation (because life happens).
When assessing these expenses, it’s important to be honest with yourself. Even though meal prepping chicken and rice for every meal might be a cost-effective option, it probably isn’t a sustainable one—especially when you consider the time required and its potential effects on your physical and mental wellbeing.
So, take a hard look in the mirror. Decide what’s realistic for you and your lifestyle, and commit to stick to it. This can look like choosing to cook at home two more times per week than usual, shopping the sales racks, or getting your errands done on your commute to avoid unnecessary car trips.
3. Determine Your Desired Savings
When it comes to saving, specificity is key. Everyone wants to “save as much as possible”, but the people who do are the people who set a clear, achievable goal. While this number may change with your circumstances and stage in life, it’s your commitment to saving something that will make the most difference.
401(k)s:
Most employers have a sponsored retirement program, or 401(k). You can opt in to automatically contribute a percentage of your paycheck to your retirement account, and depending on your employer, they may match some or all your allocation.
Emergency Savings:
A healthy emergency savings typically covers 3-6 months of your total expenses, in case of a financial crisis.
Note: Building this kind of savings can feel daunting, especially if it means delaying large purchases or vacations. Rather than postponing these expenditures indefinitely, set a specific goal (e.g., a five day trip to Italy) and determine how much you could reasonably spend to achieve it. Then, take that number and double it; this is your new goal. When you reach your goal, you’ll be able to go to Italy without sacrificing all of your progress.
4. Prune Back Wants
Once you’ve made a list of your fixed and variable needs and savings goals, make a list of other expenses you engage in that aren’t necessary, but important to you. These things may include subscriptions, eating out, gym memberships, driving services, and entertainment. Determine what you’re willing to compromise on and what you aren’t, then make reductions to meet and increase your savings goal.
For example, if you hate tv ads but want to save an extra $50 per month, choose one streaming service to use and unsubscribe from the others. Or, if you’re okay with some commercials, choose your top two favorite streaming services to keep and downgrade, then cancel the rest.
Final Thoughts
While there are many ways to make a budget, the best budget is the one that works for you, not against you. With a little accountability and willpower, you’ll gain the financial confidence to shape your future. Just remember to be realistic and give yourself grace. Life happens. If you start small and you start today, you will be amazed at what you accomplish.