Budgeting Tips and Avoiding Spending Missteps as We Welcome 2024

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Earlier this month, the Federal Reserve Bank of New York released a frightening statistic:  One in three American households does not have $2,000 in cash available should an emergency occur. With the holidays just around the corner, spending will begin to rise this month. And while credit card balances creep up, bank account balances will sink down – not just with holiday spending but with the resumption of Federal student loan repayments, the continued impact of increased inflation, and the higher interest rates we’ve endured since the Federal Reserve started raising interest rates in March 2022.  Instead of dreading your email inbox and hiding from the mailman, commit to starting the New Year by creating a flexible and realistic budget or making a few adjustments to your current budget that will have lasting benefits in 2024 and beyond.

Here are a few budgeting tips and mistakes that parents can avoid to get their finances on track to ring in a “healthy and prosperous” New Year.  Start by implementing the historical 50/30/20 rule as best you can when it comes to dividing up your net (after deductions) take-home pay.  The 50/30/20 rule divides your money into three buckets and provides guidance concerning spending for 50% (necessary spending or needs), 30% (discretionary expenses or wants), and  20% (debt reduction and savings).  

The 50%:  includes housing, utilities, food, transportation, healthcare, and childcare.  While these are necessities, given inflation and increased interest rates, look for ways to lower these costs.  For example: lower the heat, turn off the lights and TV when leaving the room, clip weekly grocery coupons, and take a walk instead of a drive.  

The 30%:  is all about defining what you “need” versus what you “want”.  Included in this category are the discretionary items that may include social events like eating out, going to the movies or concerts, annual/monthly memberships, cable vs. streaming services, or buying something that you “want” but don’t necessarily “need” like upgrading to the latest iPhone.  Instead of buying a new, expensive wardrobe, consider renting clothes from online retailers for a special occasion.  Make your favorite coffee drink at home instead of driving to Starbucks and waiting in the drive-thru – you’ll save money on the coffee and the gas.

The 20%:  Last but not least, paying down debt and creating/increasing your savings.  Over 36 million Americans have Federal student loans that began making a payment in October after a 43-month deferral.  Of these 36 million, over four (4) million also have Private student loans.  They are now responsible for paying both loans every month.

Budgeting Mistakes

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  • Not having and/or following a budget

While the first step in the budgeting process is to create and have a budget, not everyone follows it once it is created.  In order for a budget to work, it must be realistic, and it must be flexible. Instead of estimating how much you’re going to spend on fixed expenses and discretionary/variable expenses like groceries, gas, eating out, entertainment, etc., set actual numbers for yourself and ensure you stick to them. If you find yourself needing a little extra money for groceries, don’t dip into your savings, instead pull from the discretionary or “want” section of your budget so you can meet a “need.”

  • Need versus Wants

This is a crucial determination when it comes to creating and following a budget. If you’re listing everything as a need, you likely won’t have much, if any at all, to put into savings. While you don’t need to eat out, it can be convenient, but so can a meal from the grocery store which will likely cost a lot less. Many people make the mistake of not distinguishing between a need and a want when making their budget. Money spent on rent, utilities, groceries, gas, health, and car repairs are examples of actual “needs” while going to the movies or a concert, going away on vacation, or updating your wardrobe to include the latest fashion trends are classified as “wants”.

  • Not Changing Spending Habits

While you know having kids isn’t going to be cheap, many parents often make the mistake of not adjusting their spending habits when the kids are born and during each stage of a child’s life. While kids are young, your money will go to expenditures that are different from when they are teenagers. Be sure to re-evaluate and change your spending habits as your kids grow and as the economy changes.  With the cost of college these days, it is never too early to start putting money aside or in a 529 plan, depending on what state you live in.

Financial tips for a successful 2024

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1. Flexible Budget

Creating a strict budget means you’re more likely to fail to keep it. Create a budget for you that is flexible and where funds can be moved around where you need them to be.  Be strict about your savings – and only dip into it as a last resort if you can’t move any other funds. 

2. Deposit Into Your Savings First

If there’s a specific amount of money, you’d like to put in your savings each month i.e., 20%-5%, put this money away first, then use the rest for your necessary purchases, and discretionary spending. You’re less likely to overspend and dip into your savings if you’ve already put that money aside. After a few months, this habit will become second nature and you’ll begin seeing the benefits of building up your savings.

3. Consolidate and Pay Down Your Debt

If you have debt subject to high or variable interest rates, depending on your credit score, it is a good idea to consolidate all your debt into one monthly payment with a fixed interest rate. This should be done before you create your budget. You’ll have a much better idea of how much you’re spending each month on paying off debts, and not have to worry about your monthly payment changing over time. 

Good luck and Happy Holidays!  Cheers to your financial wellness in 2024!

Contributed by: Jack Wallace, Director Yrefy

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