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How to Calculate Your Lifestyle Budget *guest post*

How to Calculate Your Lifestyle Budget

By Aurora McCausland

When you find yourself in a bit of a tough financial spot, one of the first things that you do is look for things to cut out of your budget. Non necessities. It’s a stressful scenario. Although not always avoidable, you can attempt to prepare for this sort of financial crisis, by setting a reasonable budget for yourself before you’re under the financial stress. Setting a lifestyle budget also helps you save more money each month.

The necessities

The first thing you’ll need to do when setting up your lifestyle budget, is figure out how much of your income needs to go to necessary things. This includes things like rent or mortgage, groceries, gas, insurance, etc. Anything that is a consistent bill month to month should be considered a necessity. It’s smart to overestimate how much these bills will cost, if they’re not the same every month. For example, if you spend anywhere between $300 and $600 on groceries in a month, then plan to spend $600 every month, or find a way to inflexibly limit the amount. This way you’ll never find yourself in a tight spot. There are lots of ways to trim back on your budget, and some creative ones can make you realize that the “necessities” aren’t as fixed as you think. However, you need to make sure that you’re prioritizing these fixed costs first when working out your budget.

Savings and retirement

A very important part of any budget, is savings and planning for the future. You can work hard and live wonderfully, but if you don’t save for retirement, you’ll be working until the day that you die. It’s smart to plan to save about 10% of every paycheck, as long as you can afford it. A portion of this should go into a dedicated retirement savings account, a portion to investments, and a portion into your short term savings account.

Luxuries

Being on a strict budget makes you more likely to break it and throw in the towel. Giving up on your financial goals makes it difficult when you have to restart and set a new budget. It’s easy to avoid this sort of situation by setting aside a part of your budget specifically for luxuries and going out. This should include things like skin and hair appointments at the salon, going out for drinks or brunch on the weekends, and vacations. Even if you have a small budget to work with, you should allow yourself a few small luxuries every month. Depriving yourself is never good, and as mentioned before, can lead you to feeling discouraged and more likely to break your budget in a negligent way. All the same, there are lots of ways that you can take care of yourself without straining your finances. For example, having habits that support healthy hair at home can save you from spending oodles of cash getting special treatments later on.

Compare your spending to your income

Now that you have an idea of how much money you spend a month, it’s time to see how it  compares to your monthly income. Combining all of your income streams, you’ll want to have a higher income than expenses. If there is any excess from what you budgeted for your expenses, you can use that to increase your savings account or add another investment to your portfolio.

Set goals

Having a budget is one of the first steps to achieving your financial goals. You should set financial goals to work towards, so you can always be improving and know what you have to look forward to. These should be attainable goals, and you can modify them as your financial situation changes and evolves.

Are you hoping to move to a different city? Or upgrade your home? Maybe you want to go back to school, or buy a second car. Figure out how much these financial goals will cost, and compare it to your current spending habits. If you’re saving $1,000 a month, and you’re hoping to buy a house on the beach that will cost over $500k, you’ll be able to afford a 10% down payment for your second house in 5 years.

Knowing what your goals are will help you have the confidence to ask for that raise, or start up that side job that you’ve been thinking about for a while. Setting goals is healthy and will help you make the most out of your lifestyle budget.

 

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