What Are the 5 Basic Elements of a Budget?
While it may seem obvious, creating a budget is a critical part of intelligently managing one’s own wealth, yet it is something that many people overlook or understate the importance of. At Harvest Wealth Partners, our financial planners are passionate about helping our clients work toward their financial goals, and we believe that meeting one’s financial goals starts with a good budget. Consider these five basic elements of a budget, and call our team directly to schedule your first appointment or learn more about our financial planning services—
Income
The first place that you should start when thinking about your budget is your income. This is simply how much money you have coming in each month (not to be confused with savings, which is how much money you currently have and should not be dipping into if you can help it). Make sure you record all sources of income, including Social Security or disability benefits you receive, income from wages, etc.
Fixed Expenses
After you have documented your income and know exactly how much you have to spend each month, the next step is recording your fixed expenses. These are expenses that are inflexible, won’t be changing, and that you cannot eliminate. For example, the amount you pay in mortgage or rent each month is a fixed expense, as are your utilities costs, car loan payment, basic grocery expenses, etc. Deduct these fixed expenses from your income so that you know how much you have left for other spending and saving.
Debt
Debt might fall into your fixed expenses. For example, if you have a mortgage loan or car payment or student loan, payments that you make on these every month are fixed. However, you might also have unsecured debt, like credit card debt. If you have unsecured debt, paying this off should be a top priority, as failing to do so could significantly harm your credit over time. As you think about your income, putting as much as possible towards paying down unsecured debts each month is key.
Flexible and Unplanned Expenses
The next category to think about when you’re creating a budget is related to flexible and unplanned/emergency expenses. Flexible expenses refer to things that you want, but don’t necessarily need, such as the new pair of shoes you’ve been eyeing or tickets to your favorite band’s concert. When thinking about how much money you have left to spend (after accounting for fixed expenses and debt), but sure to factor in unplanned expenses and savings, too. You should be allocating money to each of these funds as well.
Savings
Finally, don’t forget to think about your savings! This might include money that you’re saving for a rainy day or to have cash on hand, as well as money that you’re investing for the future. The general recommendation is to save about 20 percent of your income every month, although this may vary depending on your financial situation. You should prioritize saving over flexible expenses.
Call Harvest Wealth Partners Today for Help
To learn more about planning for your future and developing smart financial strategies, call Harvest Wealth Partners directly today. You can reach us by phone or online at your convenience.
