Budgeting 101: What You NEED to Know
2020 has changed the way many people think about money. There was less opportunity to spend “fun” money on activities like restaurants, movies, sports games, and more. On top of that, many people also struggled to pay their mandatory bills such as rent, mortgage payments, food, utilities, and others.
Understandably, many Americans are looking to get their finances back on track in 2021.
Here are some helpful tips to budget this year:
Before Looking Forward, Start by Looking Back
Let’s start with a little retrospective thinking.
What did you spend money on in 2020?
Bullet it all out month by month and highlight which items are the things you absolutely need to pay for. Then, with a different color, highlight all things you just wanted to pay for. Finally, choose a different color and highlight any additional items you spent money on that you didn’t absolutely need or didn’t really want.
Did you notice any trends? Perhaps you overspent on items you didn’t actually want or you aren’t finding value in now. Did any of this overspending impact your credit score?
Starting with a retrospective mindset can help you figure out your budgeting strategy for 2021.
Everyone’s attitudes towards finances are different, depending on factors such as:
- Where you are in your stage of your life
- Your personality
- How you were raised with money
- Where you work
- Your status at work
A lot of outside factors also come into play when it comes to your outlook on saving and spending. Personally, the 50-30-20 rule from Elizabeth Warren seems to be a good rule of thumb for many. It goes like this:
- 50% of paycheck should go to needs
- 30% of paycheck should go to wants
- 20% of paycheck should go to your financial future (emergency savings, investments, retirement)
In all honesty, following this strategy every month can be hard and sometimes your needs will outweigh everything. It won’t be perfect every month and that’s just life.
Though with your retrospective you’ve done, you can identify how much from each paycheck should be saved for needs, wants, and potentially saving, investing and/or retirement.
This is why TrueConnect exists – to help those who don’t feel ready to start saving and investing, and need help with their needs that are right in front of them. Costs add up. We get that… (we’re here to help!)
Getting Your Budget on Track in 2021
Make Time to Budget
If possible, aim to carve out 2 hours (with your partner if you have one) to do your retrospective and budgeting together to fully understand your spending habits as a whole. Make sure when you review last year, you also include any previous months from this year (i.e. January-March 2021).
Are there places you overspent? Do you feel joy from everything you purchased that you thought you “wanted”? Understand your past so you can make time to budget for the rest of this year.
Refine Your Budget
Can you list out the rest of the months and include a budget for each month? Put your needs costs to the side and factor those out of your paychecks. Try to create a note on your phone (yes, it’s as simple as that) and keep tabs of when you spend money on coffee, treats, toys, a bottle of wine, whatever it may be. Honestly, this is easier than saving and organizing your receipts later…
There’s a helpful 50-30-20 calculator that can help you refine and segment your budget. If you aren’t in a position to start saving or aren’t ready, could the 20% go towards paying off any lingering debt?
Unload High Interest Debt
Now that you have a basic plan for this year, focus on identifying where you have lingering debt that needs to be removed (you probably already know where this is).
Do you have credit card debt? Car loan? Call your bank and ask about reducing the interest rate on your loans. Interest is a very easy way to throw away much needed money. Banks want you to remain a customer so ask if they can reduce your interest rate each month. There’s a high likelihood that they will…
Now that you’ve looked at your budget, this is also a great time to see if you can increase your monthly payments to your loans. While saving is important, the longer you let interest accrue on your debt, the more you’ll pay in the long run. This compounding interest can be quite harmful to your wallet and credit score…
Review Your Benefits with Your Employer
Were you aware that most employers offer voluntary benefits now that can help you save money across a plethora of different areas? Check your benefits to see where they can help.
Financial wellness has been a major new inclusion into benefits across the nation. These benefits could include, but aren’t limited to:
- Small-dollar loans (like TrueConnect which provides loans with no credit check)
- Free financial counseling
- Rewards programs
- Emergency savings programs
The best part about all these programs through your employer is that your employer vetted the program – if they trust them, you can likely trust them.
Try these budgeting tips out. What are your thoughts on the 50-30-20 rule and the above tips?
TrueConnect is an employer-sponsored loan program. No credit check to apply. Funds are available with one business day. Loan repayment is through automated payroll deductions and you have the ability to increase your credit score as all repayments are reported to all three credit bureaus.
If you’re interested in bringing TrueConnect to your organization, share this ondemand demo with your benefits director.
TrueConnect™ is a trademark owned by Employee Loan Solutions, LLC. Through benefit arrangements between Employee Loan Solutions, LLC and employers, loans and other financial services are offered by various lenders to employees.