Planning a Budget for Saving Contributions

October 17, 2022

by Christian Phillips

Financial stability begins with appropriately allocating funds. Frandsen Bank & Trust has provided a guide to help your savings contributions. Your financial goals are more achievable than you think.

Calculate Monthly Income:
The first thing you want to do is calculate all sources of income to understand your situation before financial obligations are considered. For this process, ensure you record the net pay, not the gross pay.
[Definitions]
  • What is Net Pay? Net pay is the amount deposited after subtracting taxes and other deductions, also known as “take-home pay.”
  • What is Gross Pay? Gross pay is the amount made before taxes and additional deductions such as health care, dental, 401k, etc.
Evaluate Expenditures:
All monthly expenses must be accounted for to accurately depict an individual’s financial picture. No monthly expenditure should be considered “too small.” Here are a few expenses that may be applicable: Rent, mortgage, phone bill, utilities, car payment, car insurance, medical expenses, groceries, eating out, entertainment, and other miscellaneous expenses. These will be divided into fixed and variable expenses.
[Definitions]
  • What are fixed expenses? Fixed expenses are things that will stay the same on a month-to-month basis. Rent, mortgage, and car payments are examples of fixed expenses.
  • What are variable expenses? Variable expenses are noted as things that will change on a month-to-month basis. Utilities, entertainment, groceries, and eating out are examples of variable expenses.
Track Expenses:
Tracking spending habits for approximately 1-2 months might be beneficial. This will highlight expenditures that can be eliminated. Review bank statements and categorize expenses accordingly. Online and mobile banking features will be helpful during this process.

Recommendations:
Subscription-based entertainment such as Netflix, Hulu, Disney+, and Peacock tend to be underutilized. The statement is especially true when you have more than one service. It is recommended to eliminate subscriptions based on total usage and monthly cost.
[General subscription costs]
  • Netflix: $6.99 - 19.99 Per Month
  • Hulu: $7.99 - 14.99 Per Month
  • Hulu Live: $69.99 Per Month
  • Disney+: $9.99 - 19.99 Per Month
  • Peacock: $4.99 - 9.99 Per Month
Food Expenditures:
When creating a budget plan, grocery shopping for household necessities should remain a top priority. In addition, food expenses regarding eating out can make budgeting extremely challenging. Try and preplan the when and where for eating out at restaurants or fast-food chains. This can be considered a “cheat day.” It is recommended to consider eating out as a fixed expense. Doing so should help set limitations.

Set a Goal:
The execution process is dependent on the overall goals of the budget. Do you want to save for a house, car, college tuition, or retirement? Make a list of short and long-term goals you want to achieve within predetermined timeframes.

Execution:
The execution stage is relatively simple. Take your net pay amount and subtract all monthly expenditures from it. This will highlight the remaining funds available after financial obligations. For example, imagine someone’s monthly net pay totaling $3,400 and expenses $2,330. After subtracting the two variables, the total comes out to $1, 070. Now comes the question, “how much should we contribute to a savings account?” You might consider allocating at least 50 percent of the remaining funds to a savings account. Identify one of your short or long-term goals and calculate how long it might take.

Accessibility:
Consider depositing funds into a different account, separate from everyday spending. Accessibility is important, but remember to incorporate safeguards to repress unnecessary expenditures.

[Final Thoughts]
Consider opening an account that earns you interest on your money, such as a Frandsen Bank & Trust Money Market account. Benefits include tiered interest, free eStatements, a $10 monthly maintenance fee waived when a $2,500 average monthly ledger balance is maintained, and a $3 limit fee for each withdrawal, transfer, and payment exceeding six per monthly statement cycle.

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