creating a budget in uncertain times

Building a Smart Budget in Times of Uncertainty

Now is a time when long-term plans are in question. Coronavirus has everyone taking a second look at their finances, wondering if future expenses are a good idea and if now is the time to save. Between the lockdown, employment upheaval, and serious changes in the business world, we’re all feeling a little uncertain. Especially when it comes to spending.

Whether you are an essential worker, working from home, or one of the millions between jobs due to COVID conditions, it can help ease your financial uncertainty to build a rock-solid budget. Building a budget is about more than just saving money, it’s about understanding how you spend and what you’re spending on, then making decisions to make your situation better.

The Key Elements of a Smart Budget

A smart budget is made up of four elements:

  1. After-Tax Income

  2. Essential Spending

  3. Savings Goals

  4. Optional Spending

Any personal or household budget starts with after-tax income. This means you’re working with the income you have to spend, not the income you earn on paper. From there, separate out spending that is absolutely necessary and deduct it from your income. Then define your savings goals and set a little aside each month to reach them. From there, you can see your real budget for optional spending and make smart choices on how to spend for maximum happiness and positive effect.

Start with Your After-Tax Income

Always start with after-tax income. This ensures you don’t accidentally over-estimate how much is available to spend. If you have an employer, then your after-tax income is likely the amount that hits your bank account every month. This is because most employers deduct the tax amount automatically to help everyone not have to do this manually.

If you work for yourself or are part of a gig-economy, you likely pay taxes out of the income that hits your bank account. We strongly suggest doing your own employer-deductions and stowing your tax-percentage in a separate account. Round up, just to be safe.

Once you know your after-tax income, you have a starting place. This is the amount you are able to spend each month. If you come in under this number, you’re winning. At the very least, you are successfully budgeting.

Itemize and Sort Your Expenses – Essential or Optional?

The next step is to itemize your expenses. Use a handy online tool like Intuit/Mint to track, view, and categorize every single thing you spend on. It’s easier than it sounds. With online tools, you don’t have to keep receipts or balance a checkbook. Just hook your bank and credit accounts into the program and it will record every expense (and deposit/payment) made. It’s also handy for doing your taxes fast.

So, looking at your itemized expenses, sort them into two primary categories: Essential an Optional.

Essential spending is mandatory. Rent or mortgage, bills, medicine, school supplies, and groceries are your basic essentials. Your family may have others as well.

Optional spending is optional, if you’ll pardon the tautology. This is anything you could skip for a week or a month without suffering,. It can also be anything you can easily cut back on, at least temporarily.

Calculate Your Essential Spending – Paying the Bills

Now it’s time to define your essential spending amount. Your budget should be a simple math problem, so we’re going to reduce the itemized list into 1 combined mandatory expense.

Look at your essentials. You should have home costs (rent or mortgage) and home bills including water, power, electricity, and maybe gas. The next essential is groceries, often second only to rent in monthly expenses. You can cut back on groceries, but you can’t cut out food entirely. From there, remember to include mandatory lifestyle expenses. Debts and credit cards must be paid, so calculate the minimum or the amount you usually pay. Medicines must be purchased, if you pay copay, and children have a mandatory expense for school supplies annually.

Combine these costs into one mandatory expense, rounding up to give yourself breathing room in the budget.

Define Your Monthly or Weekly Savings Goal

Now define your savings goal. Every budget should include savings because it ensures you’ll set some aside. Always address your savings goal after essential spending and before optional spending. Saving is very important now, during these uncertain times. It’s better to have a nest-egg than to over-spend when you’re not sure what finances will look like in the future.

Your savings goal doesn’t have to be big. It can be a few dollars a week or hundreds, depending on your income and wiggle-room. Decide how much you can spare and how much you want to save and find the happy medium. Remember, you can always add more to your savings at the end of the month if you have effectively lowered costs and have some leftover after optional spending.

Prioritize Your Optional Spending

Finally, we reach your optional spending. This is everything you could cut back on or live without, at least temporarily. Eating out or ordering food delivered usually accounts for the largest optional expense in most households, but not always.

Optional expenses include video games and entertaining subscriptions. It includes toys and clothes that are non-essential for work or school. It also includes special treats from the store, so be sure to budget those separately from essential grocery spending. Classes and groups can be considered optional but tend to be more locked-in and your investment tends to be higher.

With your optional spending defined, prioritize. What do you really need? What will make you the happiest for a good price? Treats from the store often help us spend less on tasty things than ordering food, for example. And if you’re part of a class or group, this can be more rewarding than a temporary pick-me-up.

Make a list of your favorite optional spending choices and how much they cost, then add them up.

Putting the Budget Together in Uncertain Times

Now it’s finally time to put it all together. Start with your income. Subtract essential spending. Subtract your savings goal.

The remainder is your discretionary funds that can be spent on optional things. You can have a little fun, treat yourself, or invest in a good experience for the whole family. By defining your discretionary funds, you know exactly how much you have to work with and can make some pretty great plans for how to make the best use of it.

Here at Koster’s Cash Loans, we know that financial hardship can always be around the corner, whether you see it coming or not. Smart budgeting can help you avoid overspending, save intentionally, and enjoy your discretionary funds more fully. Not to mention moving the right direction on paying debts and ensuring yourself a tidy nest-egg for the uncertain future. Let us be the support you lean on when times are hard and we’ll help you stand financially on your own without unnecessary hardship in these uncertain times. Contact us today to consult on your financial and loan-related plans.


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