Tips from a lending expert: Budgeting – Are you living within your financial means?

You can most likely tell me how much money you made last year. But, I bet you cannot tell me how much you spent. A healthy knowledge of your finances and a strong budget can help you track and monitor your spending as well as help you plan for large, periodic expenses.

A budget is a plan that ensures your income will cover your expenses and map out a savings plan.  If you find that your income cannot cover your expenses, budgets can aide you in determining where you can cut spending.

A Harvard bankruptcy expert, Elizabeth Warren and her daughter Amelia Warren Tyagi created the 50/30/20 rule that will guide you when creating your budget. This rule contains the below four steps:

Step One: Calculate your After-Tax Income

  • After-Tax income is defined as the amount of money you have left over after all federal, state and withholding taxes have been deducted from your taxable income.

Step Two: Limit Your Needs to 50 Percent

  • Items such as groceries, housing, utilities, health insurance, car insurance, etc. fall into the “needs” category.
  • The amount you spend on your “needs” should be no more than 50% of your total after-tax income.

Step Three: Limit Your Wants to 30 Percent

  • Items such as your unlimited text and data cell phone plan, your cable and internet bill, the tinted windows on your car, etc. fall into the “wants” category.
  • The amount you spend on your “wants” should be no more than 30% of your total after-tax income.

Step Four: Spend at Least 20 Percent on Savings and Debt Payments

  • This category includes saving money in your emergency fund and any retirement accounts.
  • Your minimum payment on your credit card is a “need” that counts towards your 50%, but any payments beyond that is considered an additional debt payment, which falls into the 20% category.

This rule will help you get started on your budget and guide you through your finances.  Here are some additional useful tips to help you get started:

  1. Know what bills you have and when they are due.
  2. Know your current spending and set goals that take into account your long-term financial plans.
  3. Track your spending to make sure you are meeting the goals and guidelines you set.
  4. Be aware of ATM withdrawals.  If you notice your ATM visits being more than once a week, start tracking where that cash is being spent.
  5. Use budgeting software to save time and trouble.  One of the top online budgeting tools can be found at  This secure website is free and is a great tool for budgeting. Mint not only will help you create a budget, but it will also help you monitor your credit score and help you plan and reach any financial goal you wish.

Budgets are essential in life.  Budgets enable you to make a behavioral change to your whole outlook and attitude toward your spending. The longer you keep at it, the easier it will become, and then it will eventually become your habit.  Happy Budgeting!

“If a man empties his purse into his head, no one can take it away from him. An investment in knowledge always pays the best interest.” – Benjamin Franklin

Given that laws may vary significantly between jurisdictions, the legal advice given on this site should not be considered all-encompassing and applicable to all readers. Please consult an attorney in your own jurisdiction if you need legal advice. This blog is for informational purposes only.  We are not attorneys or accountants and strongly suggest you contact a lawyer or accountant prior to taking any action related to the information provided herein. 

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