Organizing Your Finances the Fun Way
Putting together a budget or financial plan doesn't seem like a fun activity but it's all about where you start.
Ask yourself a few questions:
- What are my short-term goals for the next twelve months? (For example a new car, a vacation).
- What will they cost?
- What are my goals long-term? (e.g. a nice retirement account, large camper to tour the country)
- What will all of that cost?
- What career do I want and how can I progress within it?
- What are my immediate wants and needs? (e.g. a place to live, food, heat, a way to get to work)
Okay, so now what do you do to achieve all of this?
First put numbers on the short-term goals, (obviously you have to do some research):
1. A slightly used car. For example according to Edmunds.com, a 2007 Toyota Camry LE is offered around $14,000. With taxes, and fees the total price would be $15,400. Assuming a good credit score (680 or better) you could get 5% financing and pay $290 for 60 months (5 years). This is without having to put any deposit down.
2. Going on vacation can obviously cost a little or a lot depending on where you go and for how long. If you go to Florida and rent a hotel or timeshare, plus airfare, meals and entertainment, you’re talking at least $1500-$2,000 for a week.
What about a long-term goal like a comfortable retirement?
3. Previously we did a study of what your long term retirement savings would be if you automatically deposited a set amount each month into a qualified account (IRA, 401k, 403b, Roth). Hopefully your employer will have a sponsored retirement plan (usually a 401k) and if you’re lucky may have a company match.
At this point we have to make some assumptions:
- You have a full-time job that pays $47,000 which equals $34,000 after tax or
- $2800 per month.
- Sharing an apartment with a roommate is probably in order and the rule of thumb is no more than 30% of your take-home pay (or disposable income) should go towards rent. A decent 2 bedroom apartment is available for $1500 or $750 each, (5-15 miles from work).
- Heat and A/C are a must, and water is an additional expense in some cases. These will total around $200 divided by 2 which equals $100.
- Food is a given and should come in around 10% of your available funds or $280 per month per person, and that includes eating in and out.
- Now we can add the car expense which is $290 per month plus gas, insurance, tolls which might be an additional $250. Obviously, if you can get away with having no car and using public transportation, it would lower your cost considerably.
- Most people can’t live without a TV, internet or phone of some sort (although if you had to, you could). Splitting the TV and internet and having a cell phone plan costs about $100 per person.
- What about any student loans or other debt (like credit cards?) We’ll add $400.
- Your employer should provide a health plan which would be deducted from your pay at an average rate of 7% which would be about $200 per month.
- An emergency fund is highly recommended since something unexpected always comes up. Plan to set aside 10% of your take-home pay or $280 for that.