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Holberg Financial: Foundations of Financial Health

There isn’t one “right” way to budget and there definitely isn’t a single method that will solve everything all at once. A lot of us don’t budget because we feel shame about our finances or simply don’t know where to begin. The first step is to get comfortable with the concept of a monthly budget by understanding how one can work and taking more control of how we spend from there. 

Start building your own budget by focusing on these five key steps:

1. Figure out your take home income

This is the total amount that you or your household earn in a month. Depending on your work, most commonly it’s deposited weekly, biweekly, or monthly. Once you have your monthly total, you’ll have your starting point for how to plan out your expenses, savings and taxes. 

2. Add up your fixed expenses

Your fixed expenses are regular payments that don’t change very much from month to month. Things like your housing costs (rent or mortgage), cell phone bill, student loan payments, a car payment, or insurance. The good thing about fixed expenses is that you know they’re  coming each month so you can predict them and plan ahead. 

Ideally, your fixed expenses should take up 50% or less  of your take home income from step 1. 

3. Add up your discretionary expenses

These are the opposite of fixed expenses, and cover things that will change from month to month, like groceries, gas, eating out, entertainment, and more. This is a large category that can cover a wide range of small and large expenses depending on your lifestyle. 

A healthy percentage for discretionary expenses is 35% or less of your take home income from step 1. If you’re spending more than that, it’s a strong sign that you need to examine where your money is going in this category and find ways to cut back. 

4. Add up how much you’re saving

Don’t forget to budget for savings! This includes emergency savings, saving for travel, education, buying a home, etc. With this budget tool, only add up the amount you’re saving from your take home income. Don’t include any savings here that are automatically deducted from your paycheck. 

A healthy percentage range for your savings compared to your take home income is anything above 5% and a really great range is anything above 10%. 

5. Give yourself some “flex funds”

Last step, build in a little breathing room to make sure things aren’t too tight each month. Aim to have between 5-10% in flex funds at the end of the month for the surprises (some fun, some not-so-fun…) that life will inevitably throw your way. 

A healthy percentage range for your flex funds compared to your take home income is between 5-10%.

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Holberg Financial: Foundations of Financial Health

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