Budgeting and Saving Tips

Creating a budget and establishing saving habits, while essential to financial wellness, can feel overwhelming. Maintaining a new budget while sticking to savings goals can be equally intimidating. However, there are steps to take that can guide you through both processes, helping to alleviate worry and promote financial success.

Budgeting

Budgeting is a crucial tool for tracking income and expenses. Being consistent can help you manage your finances. There are various methods to create a budget, including apps (many of which are free), spreadsheets, or journals/notebooks. Regardless of the method you choose, consistently reviewing your inflows and outflows is the most critical aspect. To begin, track every incoming and outgoing dollar for a few months to gain a better understanding of your spending habits. Once you understand your habits, you can identify ways to adjust your spending, so you eventually have more coming in than going out of your accounts. It is essential to reach a point where your expenses do not exceed your income so that any surplus amounts can be directed towards savings.

An overall standard budgeting guideline is the “50/30/20 Rule,” which allocates 50% of take-home pay to needs, 30% to wants, and 20% to debt payment or savings.

The "needs" category includes essential items such as housing, food, clothing, and utilities. Try to keep housing or rental costs at 30% or less of your total take-home pay.

The "wants" refers to discretionary spending like dining out, travel, and vacations; these funds can be spent however you choose!

The final 20% should be allocated to debt payment or savings. Paying down high-interest rate credit card debt can be one of the best financial steps you take, as this saves you money in the long-term; always pay more than the required minimum amount and avoid incurring additional debt while making payments. The key to any budgeting method is prioritization. Ensure funds for necessities are available first and avoid overspending on these items. Then, consistent review will keep you on track!

Savings

A savings plan should prepare you for both expected and unexpected expenses. The most important part of a savings plan is establishing an "emergency fund," as the next unexpected expense is not a question of if, but rather when.

Ideally, an emergency fund should be enough to cover three months of take-home pay. But starting your savings with any amount is fine. Consistently saving is more important than the actual amount saved, because funds add up quickly. Start by setting aside small, manageable amounts into a savings account or another method. If you have a savings account at a bank where you already have direct deposit, consider automating paycheck deductions directly into that account so the money isn't easily accessible and therefore not missed.

Once your emergency fund is established, begin prioritizing both short-term and long-term financial goals. Short-term savings typically span one to three years and may include goals like a car down payment or a vacation. It's beneficial to set a specific dollar amount for each goal and keep these funds separate from your emergency fund. Ideally, use a different bank account for these savings. Long-term goals often involve saving for education, a home purchase, or retirement, typically with a timeframe of ten years or more. For these goals, opening a savings or money market account is crucial to earning and compounding interest. Contributing to employer-sponsored retirement plans is also an excellent way to save, and many plans offer matching contributions.

Whether you are starting a budget or savings plan, keep in mind that progress – however slight – is still progress! Developing consistent habits is essential for both efforts.

The financial experts at The National Bank of Indianapolis are here to help you. The specialists at any of our local Banking Centers can share more about savings options that could help meet your needs. To learn more about our services visit our Personal Banking page.