How to budget, saveFARGO – Ordering a $4 latte five days a week costs nearly a grand a year. Weekly pizza for a family of five tallies up to nearly $2,000 a year. When Alicia Kellebrew points out the seemingly insignificant spending to clients, they’re often shocked.
By: Anna G. Larson, INFORUM
FARGO – Ordering a $4 latte five days a week costs nearly a grand a year. Weekly pizza for a family of five tallies up to nearly $2,000 a year.
When Alicia Kellebrew points out the seemingly insignificant spending to clients, they’re often shocked.
“They’d never thought about it in those terms. There’s maybe a disconnect where they’re not quite aware of what they’re spending,” says the National Foundation for Credit Counseling certified financial professional with The Village Family Service Center in Bismarck.
Kellebrew recommends creating a budget to curb unnecessary spending.
Some people might shy away from the b-word, but she says it’s best to get over it and learn how to live within your means.
“You can’t control certain costs, so that makes it all the more important to control what you can,” she says.
Kellebrew, along with Chris Mason, an associate professor of finance at Concordia College’s Offutt School of Business, and Edward Jones financial adviser Sarah Nikle offer up their best tips for making a budget and saving money.
When in doubt, make an appointment with a finance expert.
• First, calculate income and expenses.
• Then, prioritize expenses.
At the top of the list should be rent, health care, utilities and food, Kellebrew says.
After the expenses needed to live are listed, add debts like car loans, student loans and other monthly expenses.
• Now create a budget.
Decide how much income goes where. The Village Family Service Center’s guidelines state that housing shouldn’t be more than 25 percent to 35 percent of total income and utilities are 6 percent to 10 percent.
Refer to the pie chart for more information about how much money should go toward categories.
If you’re over in a certain area, Kellebrew says to trim a little from many categories rather than eliminating a category.
“If you spend $300 a month on eating out, you can’t just eliminate it. It could backlash and be worse,” she says. “You have to give yourself a little bit of something you enjoy or it won’t work. It has to be realistic.”
“People often think they need to be rich to start investing or to start saving, and that’s really not the case,” Edward Jones’ Nikle says.
To start saving, first create a goal list – what you want to accomplish financially in a month, a year and the next five years.
“Time is really on your side, and it can do fabulous things for you if you invest young,” she says.
Mason, who’s also president and chief investment officer of Fontis Investments in Minneapolis, urges people to contribute to a 401(k) (a retirement savings plan sponsored by an employer) if their employer offers it. Investment websites can also provide helpful information.
“The most important dollar saved for retirement is when you’re 21. The second-most important dollar saved is when you’re 22. The least important is when you’re 64,” he says.
His point? Start young.
• … and don’t touch it.
The 5 percent to 10 percent of income set aside for saving shouldn’t be touched, usually.
“Savings isn’t savings to save until you want to spend it,” Mason says. “It’s a nest egg in case something happens. The key is to continue to save money.”
• If you get a raise, don’t raise your standard of living.
Mason’s father taught him to save his raises rather than crank up his standard of living.
• Choose debt wisely.
Don’t have debt for things that don’t increase in value, Mason says.
A home is probably the only thing that’s worth borrowing to purchase, he says.
“Look at long-term impact of spending. If you look at that and see that over the next year, I could save $400 by making my coffee in the morning … it’s balancing that as opposed to I’m going to buy, I need the hat, the coat or whatever, and throw it on the card,” he says.
• Try cash or checks to encourage saving.
“It hurts more to write a check than to swipe a debit card. That makes you stop and think about it,” The Village’s Kellebrew says.
• Choose an accountability partner.
Whether it’s mom, dad or a friend, Mason advocates that people should have an accountability partner.
The person acts as a sounding board when you’re making major purchases, he says. They can help keep people on track with their financial goals.