FINANCEDO YOU HAVE TOO MUCH MONTH AT THE END OF YOUR MONEY?

DO YOU HAVE TOO MUCH MONTH AT THE END OF YOUR MONEY?

finance, income, budgeting, paycheck to pay check | CRACKYL MAGAZINE
By Millicent Simonics

The harsh reality is that you are not poor but your money management might be.

The famous words sung by Marty Stuart have us dancing along with his catchy tune, but the reality is much less dance worthy. For some, the end of each month approaches with the painful realization that there is not enough money to cover all our expenses. One solution might be to get a second job or even a higher paying job. But, that is not always a possibility, particularly if we enjoy our current job. The real problem is that when we live paycheck to paycheck, we set ourselves up for failure with no safety net or room to grow. 

The harsh reality is that you are not poor but your money management might be. Don’t worry though, most people find themselves in this woeful spot and there are solutions within your reach.

A direct solution is to budget your existing earnings better. The most common and effective budget method is the 50/30/20 rule that takes your after-tax income and divides it into three categories: expenses (50 per cent), wants (30 per cent) and savings (20 per cent).

The expense category — or 50 per cent of your income — is devoted to all essential bills: housing, food, transportation and utilities. These basic necessities should always be covered first, without question. If the combined total of these expenses add up to more than 50 per cent of your income, then it is time to reassess. By identifying the largest expenses in this category, you will begin to see where you may need to downscale. The immediate burden of downscaling now will pay off tremendously in the future when your budget is more balanced and you have more money to contribute where it’s needed.

The wants category is the one with the most room for fluctuation and it comprises all the extra expenses that make life more enjoyable and exciting. This category contains items like your phone bill, your internet package, those season pass tickets. While these luxuries make your life fun and vibrant, their cost should not cast a shadow on the necessities. Each month, you can set aside 30 per cent of your income for the wants at the top of your list. When you deplete all of that resource, then your entertainment is limited to the free and frugal thrills of life. If you are continually going over in this category, then it may be worth it to cut out or limit places of spending to reserve funds for other purchases. One major spending pit is convenience items like on-the-go coffee or sports drinks. These items can be bought for cheaper or even on sale at grocery stores in bulk and even made at home to save money in the long run.

The savings category, the biggest goal in striving for financial freedom, is devoted entirely to your safety net. In having a savings account, you gain financial freedom and independence through being able to pay off debt, establish a retirement plan, create an emergency fund and even a rainy-day fund. The limits are endless with a savings account because this money set aside gives you the room to grow through investing.

Ideally with this method, your finances should all fall within these categories, and if they don’t, then you are simply spending more than you can afford. Additionally, this rule is not one size fits all. Some people prefer the 50/20/30 method, while others prefer the 70/20/10 method, which devotes income to expenses (including needs and wants), debt and savings respectively. By reassessing and adjusting your spending where needed, you can achieve financial freedom and you can stop worrying about having too much month at the end of your money. 

Photo By iStock Images