By Finbar Garcia, LUTCF, FSS, MFA
So, Christmas over and Carnival round de corner. Did you balance your budget? I’m sure many persons spent a little more on Christmas 2022 than the last two years prior. If you are one of those who took my advice in December 2021, (CN December 5, 2021) then clearly you saved a lot on gifts and spending on unnecessary things.
January into February are considered the ‘guava months’, this is because of the spending in December, the credit card statements in January and any hire purchases made where payments start in February, along with your normal monthly commitments. So, how did you balance your budget or are you still ‘palancing’?
While for some persons the task ahead may be daunting, you need to stick with your plan or at least use the 50/30/20 ‘quick rule’.
What is this quick rule? It’s dividing your after-tax income into these three categories: 50 per cent for needs, 30 per cent for wants or debt repayment and 20 per cent for savings.
By using this intuitive and straightforward rule, you can prepare or adjust your budget reasonably well, once you use it as planned.
The Needs: The rule states that you should spend up to 50 per cent on your monthly obligations that are necessary for survival, like mortgage/rent, car loan, groceries, insurances, utilities etc, the must do part of your budget.
The remaining half should be split between 20 per cent savings and 30 per cent wants or debt repayment. The actual amounts or percentage may vary based on your ‘spending spree’ you had last December.
This rule is a template that is intended to help persons manage their money and not dip into their normal pattern of savings, emergency funds that they started or even their retirement programme.
If you are spending more than 50 per cent on the needs section, you will have to either cut down on the wants section that creates the increased obligations or try and downsize your lifestyle.
The Wants: This is an area that you will want to look at closely, as not every want is considered a need. We all want nice things in life; however, we need to save towards it, and not create the imbalance in our budgets by overindulgence. By setting aside this 30 per cent of your budget, you should focus on debt reduction. By this I mean, setting timelines to pay off certain debts, like the increased credit card rolling balance, the credit union loan or hire purchases made as soon as possible.
It is also an area where a want was converted into an urgent need due to malfunctioning major appliances, like a new fridge, stove or washer/dryer, as you can factor it as a debt reduction.
Don’t convert it into a long-term debt, maybe a 12-month instalment plan. You don’t want to increase your needs section for an extended period. If you lose control of this area, then your savings will be affected.
The Savings: While this is pegged at 20 per cent, this area needs more attention. The more you can save towards your wants, the less debt you will have and more so the recurring monthly debts that will only increase your needs section.
The focus here is to increase your savings, if after a year or so, you can increase this area to 25 per cent and reduce one of the other two areas, then you will be on the right track to a healthy financial lifestyle.
Sometimes we need to revisit our personal lifestyle and not over indulge. I certainly reduced my expenses in 2022. I cut back on the wants, to increase my savings.
List your needs, wants and savings in three columns, insert the dollar amounts and calculate the percentage for each column. This will give you an idea of your spending habits. After careful reviews, you will then notice areas that you can surely cut back on.
With the impending increase in our electricity rates and most likely being a monthly bill payment, you will have to cut back somewhere. And the possible reintroduction of the land and building tax means you will need to be careful on your spending.
It does not necessarily mean depriving yourself or family of certain comforts at home, but taking charge of expenses.
As the saying goes, “You have to start thinking like you’re blessed, talking like you’re blessed and acting like you’re blessed…That’s how your blessings get activated.”
Call me for more information on planning your financial future. Send your questions to firstname.lastname@example.org or call 620-1185.