A Budget Plan to Reduce Financial Stress

Reduce Financial Stress by Creating a Budget that Works for You

By Jim Rial

 

Getting your finances in order and building a budget plan that works for you can be a tough one with many obstacles. However, you have been eating well and your mindset is clearer these days. It's time to get the financial aspect of your life on track. cutting down your stress with healthier finances will also do wonders for relieving anxiety. So, let's start by looking at the big picture. Your future is important no matter what age you are, if you haven’t enrolled in some sort of retirement plan, it’s time to do so now. I’m not going to sugarcoat my own stupidity with this one. I was enrolled in many different 401k plans throughout my adult life. Each time I moved on from employment, instead of rolling over, I just took the funds they sent me and ran. Probably not the smartest move and I didn’t get serious about this until I reached my forties. Now I put a hefty amount away from each pay period just to play catch-up. The point is that I now at least have peace of mind knowing that I’ll have a little extra on top of my social security when I retire.

Retirement planning should be the first step, these are usually tax-exempt deductions and if you play your cards right and budget well, you can manage to fit in this payroll deduction. Once you have the retirement fund worked out. It’s now time to build a budget that fits your lifestyle and allows you to indulge and enjoy life occasionally. After you get your budget in order, if you have a credit score below par, there are also ways to get that worked out as well. These three things will get you back on solid ground with a solid financial foundation. I’m not saying you will be living the life of a king, but you will have the wherewithal and confidence to live a little more comfortably.

 

Let’s start with a traditional budgeting rule called the 50/20/30 rule. This rule says that 50% of your after-tax income goes to your needs, which include your major bills like mortgage, auto payments as well as groceries and gas. The next 20% goes to your wants such as dining out, movies, and streaming services like Netflix and Hulu. Then 30% goes directly into savings for emergencies and/or additional retirement funding. Stocks and bonds are also another good way to save money. I will touch base on this in another related article. I think by now you get the point.

Getting your budget back on track can be a daunting task. This is one where you need to keep a cool head, open mind, and not get discouraged. Creating a solid budget can be done but may take some time to meet your goals. The biggest problem if you’re like me, is that you’re probably living check-to-check. This makes setting up a budget difficult because you are juggling everything weekly or bi-weekly based on your pay schedule, not your billing cycle. Bills are due, possibly overdue, you need groceries, gas, and other necessities. Sometimes when that biweekly check hits the bank, it's like the floodgates have opened and the money goes out just as fast as it came in. I often miss the weekly paychecks, I feel it was much easier to manage money and save, but those days are all but gone. Not only have the floodgates opened for your bills and necessities, but you are also aching for some recreation. We all need to enjoy the finer things like dining out or seeing that new flick at Tinseltown. Maybe you just want a new pair of sneakers because the ones you have on now look like your dog drug them out of the mud and chewed on them like they were food. You’re probably stressed out because the slightest emergency could throw you over the edge and you will no longer have your head above water.

In this situation, the first thing on your list is making some cuts. Some articles will tell you to move into a cheaper apartment or buy a cheaper car. However, that’s not always very easy, if possible, at all. The first thing I recommend looking at is the types of services you subscribe to like streaming services, Hulu, Netflix, Disney+, etc.… Are you subscribed to any apps that you could cut out for a while? Pretty much any monthly subscription that is unnecessary to live should be scrutinized. Maybe investigate your internet service provider or cut the cable TV cord for a while, especially if it’s summer. In the past, I have been able to haggle with the cable TV and internet service providers to allow me into promotional deals that they offer new customers, simply by reminding them that I have been with them so long and I am a valued customer. Although these are normally time-limited for a year or a minimum of 6 months. This can help give you a little leeway while you're working on building up your financial position. If cutting costs is not an option, although I do feel everyone has a few things they can cut out. You can also seek a part-time job where you work a few nights a week. Look into a side gig like GrubHub, amazon flex, or instacart. The idea is to get a few extra dollars that you can start dividing into savings for emergencies and then dumping the rest onto your bills to either get caught up or maybe even ahead. Once you can pay your bills onto their regular payment cycle, it will get easier to divide your money up for your budget.

After reviewing my own expenses and starting to build my budget around the 50/20/30 rule. I chose to tweak it slightly due to rising grocery costs, gas prices soaring and just to make sure I was in a safe position for the important things like a roof over my family's head, transportation, heat, and electricity. This leads me to another cost-saving trick I used. Not really a secret but I had a lot of different devices, computers running in the house as well as other electrical items that could be shut down. I was able to knock about $40-$50 off my monthly electric bill by shutting things down and being more conscious about my electrical usage. So being a little more stringent and methodical you can find ways to cut down.

To start tweaking the 50/20/30 rule to fit your income. The first thing you need to do is grab a pen and paper or better yet if you’re savvy with excel or google sheets. Create a worksheet listing all your monthly expenses. Then list all your actual monthly bills. This is where I tweaked the 50% portion of the budget. I added the streaming services and subscriptions to the needs and increased the 50% to 60%. Why I did do this, it was just easier to organize by adding these wants into the bills since they are a monthly expense anyhow. If you decide to cut something out, you can easily just remove it from the spreadsheet. Since we have kids and do not have cable TV, we subscribe to a couple of streaming services. However, when they become stale, we simply cancel one service for a while and use another. You can easily juggle streaming services to get your entertainment fix without subscribing to all of them at once.

Look at my example here for the bills portion of my worksheet:

Note: When I created this worksheet the one thing, I did with the billing amounts was that if the bill wasn’t a fixed amount, I added 10% for fluctuation. Basically, I started off with a slightly higher estimate than what I was paying out per month for bills.

Next, I made a list of my many expenses. Realizing everything you spend money on can send you into shock, but you need this reality so that you can make better, more optimized financial choices. I made some heavier estimates here in this section just to give myself a baseline.

Look at my next example here listing expenses:

Remember you can tweak this section in any way you like. You may not have a pet so only add the items to this sheet that fit your life and expenses. The bottom line is giving yourself an idea of where your money goes allows you to adjust the percentages of your budget for needs, wants, and savings. Once you have a good perspective on your other expenses in addition to bills, you can adjust them accordingly making cuts or limits if necessary. Some of these may be more necessary than others. Maybe you didn’t even realize an expense that was unnecessary until you listed it. Then incorporate these into your 50/20/30 plan accordingly and adjust your budget rules as needed. Now you should have a good idea of how much money can become disposable and how much you can send to your savings account. I ended up with more like a 60/20/20 budget rule which I can live with for now. I still have money going into savings, whilst paying for my necessities and having a few wants. Sometimes the key is to hold back on your wants and build-up for the bigger ones.

My recommendation for building up savings is to open an account with a trusted bank that has online access and can easily transfer to and from your main checking or savings account. The idea though is to make it harder to access your funds unless you really need them, say for an emergency. Maybe your tire blows out on your car or the AC at your house fails. You have these funds available for this kind of emergency and it doesn’t affect your regular cycle. Then continue onward as normal, saving your 20% for the next emergency. Oftentimes while I was building my finances, I would see my main account getting low and think, I need to transfer some cash. Then I’d think again and realize the transfer takes 3 days to go through and I would be paid by the time I saw the transfer anyhow. This often deterred me from touching my savings account. So, make sure to deny any debit cards when creating these online savings. You want to make it as hard as you can to get your money. The bank I mostly recommend for this account is Capital One. I have had my savings with them for years now. They are trustworthy and easy to use, and having them helped me build my emergency fund.

What if two emergencies happen? I mean life does throw some curveballs. The idea is to prevent a huge blow to your progress. Maybe in this case one emergency comes from savings and the other from the funds that would go to savings over the next two cycles. OK, this sucks and does hamper progress somewhat, but if it doesn’t affect your needs you're still on track and can prevent a lot of stress. Then you just press on and continue with your program and over time you will recover and be ready for the next time life throws something at you out of the blue.

So, in summary, rebuilding your financial status should start with some way of saving for the future and retirement. Once this is established, move on to building a budget that fits your means. Take every avenue to cut back on things you don’t need and get yourself caught up with your regular billing cycle. Make sure your new budget allows you to put something into savings. Even if all you can afford is 5 or 10 dollars, it will add up over time. I recommend sticking to a much higher percentage, but you know what you must work with. Always set something aside for yourself as well. Remember you work hard to earn that paycheck and you must treat yourself at least occasionally. Finally, if possible, find a side gig or get yourself a part-time job, even a few short nights per week can increase lower the amount of time it takes to get yourself into a better position.