Balancing a Budget

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As the country wrestles with balancing budgets, both federal and states, it makes us stop and think: How balanced is my budget?  A budget is not simply a spreadsheet that tracks how much was spent for the month, nor is it just balancing a checkbook.  While both of these are important tools, neither fits the definition of living within a budget.

The Balancing Act

Ideally, 3o percent of your after-tax income goes toward mortgage or rent, 15 percent for food, 10 percent each for utilities, debt and transportation, and 5 percent each for clothing, entertainment and other expenses. In a perfect world, you would put 10 percent toward savings every month.  A more realistic rule of thumb is 30-30-30-10: 30 percent for housing, 30 percent for costs of living, 30 percent for debt management and 10 percent for savings.

Keeping Debt in Check

When it comes to debt management, 30 percent is a high number.  Again, in a perfect world, that number would be zero.  If your debt payments exceed 30 percent of your income, then it’s time to do some serious cutting back on spending to pay down debt.  Just think what kind of retirement you could have or what kind of dream house you could own if you put 30 percent toward savings each month!

There are a ton of websites out there that assist in setting and maintaining a budget.  Mint.com is a useful site with free money management services and Smartypig.com really focuses on savings goals.  Starting by mapping it all out on paper may be the best way to begin.  The thing to remember about a budget is that it sets limits as well as tracks spending through very specific categories.

We Like To Help

Living within the parameters of your income and sticking to spending goals can be very rewarding, both emotionally and monetarily. Keep on an eye on the long-term goal, like having six-months of expenses saved for just-in-case or saving for an Austin home loan or even being debt-free.  Let us know if we can help with credit advice, refinancing a loan or buying a home.

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