Budgeting: Good Habits Start Now
All financial decisions initially start with cash flow and your personal budget. Money and how you choose to deal with it is all about habit. The trends you allow yourself to fall into with that first paycheck will either build a positive habit or a negative habit that is difficult to change in later years. Understanding whether or not you have the resources to pay for something you want or need is the first step towards making smart financial choices.
Embrace your budget and use it as a tool to monitor cash flow. You will find if you can set up automatic savings to yourself, you now have the freedom to spend the rest of your net income responsibly and without feeling out of control with it. While budgeting takes a little up-front effort, it is well worth the financial peace of mind you will feel down the road.
Helpful hint: Think of your budget as a plan. It’s not all about restricting what you spend money on and eliminating fun. Establishing a budget is about understanding how much money you have coming in each month, what your needs are, and how to best allocate the funds.
Gross Paycheck vs. Net Paycheck
Gross paycheck is your total earnings for the pay period before any deductions are taken. Net paycheck is the gross amount minus your employee benefit costs, taxes, and any after-tax deductions your employer takes.
Helpful hint: You can help control the amount you take home by monitoring your tax withholdings.
Understanding Fixed Expenses vs. Variable Expenses
Fixed expenses are those you have little control over and include rent or mortgage, utilities, insurance, etc. Variable expenses include food, entertainment, hobbies, etc. Variable expenses are where most people live beyond their means and supplement with credit cards for what they cannot afford.
“Savings to Spend” Money
Carve out a small portion of your monthly budget to handle larger, unexpected expenses such as the six-month car insurance bill, auto repairs or holiday gifts. A small monthly contribution in your budget will help you avoid using your credit cards when you’re faced with a large payment.
Helpful hint: “Savings to Spend” money is different than your true savings account.
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