Hi, my name is Mei Carmer, and I am an Associate Financial Advisor here at Katterhenry Investment Group of NEST Capital. In case you missed our Finance 101 seminars, you’re in luck. Welcome to Episode 2 of our 8 episode video series highlighting the various topics we discussed. In this video, we will discuss understanding your spending habits and budgeting.
Let’s dive into spending first, we will discuss where your money is coming in, tracking where it goes, what kind of expenses you have, and when your money leaves. So, where is the money you’re spending coming in from? [Slide 5 of Part 1] Keeping track of this is important for making sure you are spending within your means. Is it just your paycheck or do you have odd jobs / side hustle? Consider interest, gifts, and child support or alimony as money coming in as well since all of it is money hitting your pockets. Once you have an idea of what money you have coming in, it’s now time to track your spending. [Slide 6 of Part 1] Write down what you spend your money on; everything, no matter the payment info. A popular trend is that cash or Venmo is labeled as “Monopoly money” or not real since it never hits their bank account. This is real money and should be kept track of. If you got your wallet stolen or your Venmo hacked, you would be upset because that was your money. Keeping track of your spending helps make you more aware of where your money is going.
Take the time to classify your expenses too. The 3 expenses you should consider are fixed, variable, and discretionary. Fixed expenses are those that have a set amount you have to pay; think rent or your cell phone bill. Variable expenses are things you have to pay for that will fluctuate based on usage; think gas or your water bill. Discretionary expenses are those that you choose to make like eating out or going and doing something fun.
The final spending topic I want to hit on is knowing when your money leaves; mark on your calendar when you have bills due so you can prepare and if you want to take it a step further, track your no-spend vs. spend days to see patterns that emerge. Maybe you realize that you grab take-out every Monday before your kids practice even though you swear you eat dinner at home before. Tracking this helps you plan ahead. And that leads into our conversation about budgeting.
Budgeting is not meant to be a rigid thing. It’s supposed to be a flexible plan in how to allocate and spend your money. The most basic budget strategy is to take the money you have coming in and first allocate your fixed expenses, then allocate for your variable expenses (tracking your expenses will help give you an idea of how much to estimate), and finally with what’s left, allocate for your discretionary expenses.
Budgeting is flexible and you have to do it in a way that works for you; try a spreadsheet, a paper template, use envelopes, or separate accounts. Another popular strategy allocation strategy is the 50-30-20 style: 50% needs, 30% wants, and 20% savings. You may have to try a few different methods and strategies to find what works best for you. Re-evaluate and adjust your budget regularly; it’s not something you do once and never touch again. Once you start budgeting, it’s easier to get your finances in order since it’s all in front of you! This has been episode 2 of our 8 episode Finance 101 video series. Episode 3 will discuss savings.
Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Katterhenry Investment Group of NEST Capital is a separate entity from WFAFN.