How to Budget for Needs and Wants
With the prices of everything increasing these days, it can be extremely stressful to navigate how to afford your typical indulgences while juggling all the fixed expenses. As a mortgage broker, I've seen many mistakes. If you wonder what to do if you feel you have, consider reading our blog for tips to help navigate them here.
Today, I want to discuss some practical tips on creating and following through with tailored budgets to help you reach your goals. By understanding your financial situation better, you can create a plan that allows you to continue paying bills while still enjoying your life.
Categorize your Spending into "Needs" and "Wants"
It can be extremely overwhelming to look at your statement from the last month if you feel your spending is getting out of control.
To get back in the driver’s seat, I recommend reviewing your expenses for the past month and categorizing them into “needs” or “wants.” This could be anything from groceries, streaming services, and clothing - all the way up to rent or mortgage payments and utilities. By clearly understanding where your hard-earned money is going, you can make more informed decisions on necessary items versus those you would like to have.
Tip: Doing so may also ensure that you are securely on track for future financial obligations such as a mortgage or new car loan.
Consider Different Budgeting Techniques
It’s important to always have a strategy in place. Now that you know what you’re spending and where you can form a plan to help you reach your goals.
Option 1: 50/30/20 Budget
Budgeting techniques like the 50/30/20 technique help you allocate funds towards essential expenses like rent/mortgage, lifestyle costs and savings. This conservative approach ensures that at least 50% of income goes towards essential living expenses, 30% is for wants, but 20% is set aside for savings. By seeing where your money is going with this technique, you can evaluate if your current spending habits align with your earnings and make necessary adjustments.
Option 2: Percentage Technique
Alternatively, you could use a percentage technique that allocates your income to each spending category.
For “needs,” allocate a percentage of your income for essential items such as rent/mortgage payments, food, transportation, utilities, etc.
To optimize money management, allocating a percentage of your income to cover these fixed expenses is the best practice. Doing so will ensure no surprises when the bill comes due, and you have enough money left over to cover miscellaneous needs like clothing or vacations.
For “wants,” allocate a percentage for purchases such as entertainment, vacations, clothes, and hobbies.
Regarding wants, consideration should be taken to allocate less money to these items. By doing this, you can rest assured that the rest of the money will be saved, invested appropriately, or used wisely for your future goals.
Allocate a percentage for savings each month.
Even small amounts can make a big difference over the long term as these extra funds will add up and help you reach your financial goals faster! Imagine how much more secure and financially prepared you could be by putting away just a little extra every month. Make tomorrow easier by taking the steps necessary to build up your savings today.
Track your Spending Habits Regularly
As a homeowner, staying on top of your spending habits is important. Tracking your monthly expenses can help you adjust before it’s too late. Setting up a budgeting system that allows you to complete a monthly check-in is really simple. That way, you can see how much money you spend or save each month and ensure you stay on track with any financial goals.
As a homeowner, budgeting and allocating your income is essential to maintain financial health and organizing your expenses. We’ve highlighted some important tips on how to do it wisely, from differentiating between “needs” and “wants” to developing ways of planning ahead each month.
Remember – track your spending habits regularly to keep an eye on the balances in your bank account; that way, you will not get surprised by any unexpected payments. Taking the time now to plan ahead with organized budgeting techniques can save you money in the long run.
If you want help figuring out how to make managing your mortgage easier, contact us today!