Boosting your financial health in 2017: Part two
Boost your financial health with a spending plan.
The previous article in this series, Boosting your financial health in 2017: Part one, highlighted the importance of tracking your spending, plugging spending leaks and understanding money values. This article will focus on the benefits of a spending plan.
Spending plans, or budgets, are tools to help you monitor your income and expenses on a monthly basis. There are many ways to create a spending plan such as paper and pencil, a template (Managing Your Money) or a computer program. Visit mimoneyhealth.org for a downloadable personal monthly budget spreadsheet.
To be effective, a spending plan should include the following:
- Pay yourself first. Aim to save 10 percent of each paycheck and, if possible, have it directly deposited into a savings account.
- Add income from all sources. This includes all jobs, unemployment, child support, governmental assistance and others.
- Make a list of all expenses. This includes:
- Fixed expenses- These occur every month and are essential for daily living and usually represent needs versus wants. An example is rent or mortgage.
- Flexible expenses- These vary each month and usually represent wants versus needs. Examples are food, recreation and personal needs.
- Occasional expenses- These non-monthly expenses that occur a few times a year and are often overlooked. Examples could include auto insurance, home or auto repairs, birthdays, holidays and school supplies.
4. Balance your budget. Saving + total expenses = income. If this isn’t true, then:
- Increase your income
- Decrease your expenses and spending
- Use a combination of the above
Tip: Homeowners should save 1 to 3 percent of their home value every year for maintenance and repairs. And don’t forget the importance of having an emergency fund.
The next article in this series will focus on how to manage a spending plan, also known as a budget.
For additional money management resources, visit Michigan State University Extension. MSU Extension offers financial literacy and homeownership workshops throughout the year to help you become financially healthy. For more information of classes in your area, please visit either the MSU Extension events page or MI Money Health website. Additionally, you can take the Financial Health Survey at MI Money Health to assess if you’re financially healthy and discover more ways you can improve your financial health.