Money management 101:

Guidelines for creating a budget

The 28% rule (called the Front-End Ratio in the lending world):

This widely used guideline suggests that your monthly housing costs including (mortgage payment, property taxes, insurance, and potentially PMI) should not exceed 28% of your grow monthly income.

Please understand that 28% of your gross income is an industry maximum but you are the only one that can determine if you can actually afford to use 28% of your gross monthly income for one payment.

The 36% Rule (called the Back-End Ratio in the lending world):

This rule suggests that your total monthly debt obligations, including the (mortgage payment, property taxes, insurance, and potentially PMI) should not exceed 36% of your gross monthly income.

It is suggested that the remaining 64% of your gross monthly income may be distributed as follows:

• Food: includes groceries, eating out, and related expenses and cleaning supplies, pet food/care, etc.
• Transportation: includes car payments, car insurance, gas, maintenance and or public transportation cost.
• Utilities: includes electricity, gas, water, internet, and other related expenses.
• Healthcare: includes health insurance premiums, doctor’s visits, prescriptions and any other healthcare costs.
• Insurance: includes homeowner’s insurance, flood insurance, windstorm insurance, renter’s insurance, life insurance and any other supplemental insurance.
• Childcare: if applicable, budget for childcare expenses
• Emergency Fund (GOAL): Aim to have 3-6 months’ worth of living expenses saved in an easily accessible interest-bearing account for unexpected events.
• Retirement: contribute to an IRA or a 401K, even if it is just a very small amount it will add up.
• Other Savings goals: like a down payment on a house or future travel plans
• Discretionary spending: include items such as hobbies, impulse buys, treating yourself to a Mani/Pedi, clothing and gifts, movies etc.

Compare your projected spending to what you actually spent:

It is important to take a look every couple of weeks to see what your budget says you should be saving and spending and what you are actually saving and spending. If you are not sticking to the budget you may need to reallocate your line items or adjust your spending. Because life is a moving target, your needs and budget will change, so you need to continuously monitor what is actually happening with your finances and adjust your line items.

All of these items may not apply to you, tailor your budget items to fit your needs. Even if you are not living on your own yet this is a great tool to help you prepare for when you are ready to be independent.

If you are not at the point that you can use these ratios yet, remember, growth is a journey, not a destination, and every step you take towards improvement counts. It’s important to maintain a positive mindset and celebrate small victories along the way. By focusing on the process rather than just the outcome, you’ll find yourself closer to your goals than you ever imagined.

You have got this! Make good choices!!