Three Steps to Start Building Your Financial Future!

Just like building strength through regular exercise, financial confidence grows when you take small, intentional steps every day.

The good news? By making simple, manageable changes, you can start feeling more in control of your finances and confident in your ability to handle whatever comes your way.

Step One: Start Where You Are by getting a complete and accurate understanding of your income and expenses. This is the first step in mastering your financial life.
To get started, make a list of all your income sources. For many people, this will simply be a paycheck, but there could be other sources of income depending on your unique situation.

Pro Tips:

• Use your net income, your take-home income, after taxes are either withheld by an employer or otherwise accounted for.
• Be conservative when estimating income from bonuses, tax refunds, and commissions, which can all vary.
• If your income varies month to month, to keep your estimates in the low range of your expected income.

Next, outline your expenses. Expenses are what you spend money on, including both needs and wants. Identifying the difference between needs and wants can be a challenge for anyone – food, for example, is obviously a need, but does “need” extend to eating out or buying certain brands? Those are choices only you can make.

To help you get a handle on needs versus wants, it can help to categorize our expenses by type:

• Fixed expenses typically vary little from month to month. Mortgage or rent payments are classic examples.

• Variable expenses can fluctuate from month to month, giving you more control over how much you choose to spend. Grocery bills, dinners out, and monthly subscriptions are all variable expenses.

• Periodic expensescan be either fixed or variable, but either way, they aren’t paid monthly. One example could be car annual or semi-annual insurance payments, but others could include holiday gifts, vacations, home repairs, or seasonal clothes shopping.

Your Southern Energy online banking or mobile banking app will make it easy to quickly create a list of your expenses and associated costs.

Step Two: Turn Information into Action by setting up a budget that serves your goals.

The 50/30/20 budgeting approach is a popular choice for beginners and professionals alike. It simplifies budget planning by dividing your income into three manageable parts, each allocated to a specific purpose.

While the 50/30/20 budget is a flexible approach centers around finding balance. It ensures that your money covers the essentials and lets you have some fun – all while planning for the future.

You’ve already calculated your after-tax income and listed your expenses. Now, it’s time to divide them into their appropriate categories.

With this approach, your income is divided into three “big picture” categories:

• 50% Needs – This portion covers what you need to live, such as rent or mortgage, utilities, groceries, insurance, and minimum debt payments. The big idea is that these expenses should be around 50% of your net income. If that’s not possible, you may need to find ways to reduce these costs or temporarily increase the 50% percentage.

• 30% Wants – This category is for things you enjoy but don’t necessarily need, such as dining out, hobbies, subscriptions, and vacations. Consider allocating no more than 30% of your net income to these expenses so you can enjoy life without overspending. If you need help staying within this limit, prioritize what you want to fit within the 30% range.
• 20% Savings or Debt Repayment – The final slice of your income goes towards building your future through savings, investments, and extra payments on any debts. If you allocate less than 20% of your income to this category, consider ways to adjust your needs or wants budget to increase your savings rate.

Remember, while the 50/30/20 rule provides a solid foundation for budgeting, it’s essential to recognize that individual situations can vary depending on income.

If you’re in a lower income bracket (or live in an expensive area), food and housing may take up a larger part of your income, leaving less for wants and savings. In this case, you may need to adjust the percentages to meet your basic needs – perhaps 60-70% of your income for needs, 20-30% for wants, and 10% for savings and debt repayment. Then, adjust as your financial situation changes.

On the other hand, if you’re in a higher income bracket, your essential expenses may consume less of your income. But it’s still important to be mindful of “lifestyle inflation” and to prioritize savings and debt repayment. For example, you could adjust your allocation to 40% for needs, 20% for wants, and 40% for savings and debt repayment.

Step Three: Stay Disciplined towards your savings goals.

It can be tempting for anyone to overspend in the wants category or neglect savings goals. Solution ideas include:

• Automate your savings and debt repayment by setting up recurring transfers early in the month or as soon as you get paid.
• Use your Credit Union’s Calculators to help you budget and set clear financial goals.
•  Utilize Financial Fuel, the free online platform provided by your Credit Union to create budgets, financial to-dos, and monitor your progress. . While it is a commitment, even doing it for a month or two can provide valuable insights as well as motivation to stick to your plan.

Take One Step Today

The effort you put in now, no matter how small, has a ripple effect. By building healthy financial habits, you’re giving your future self more freedom, more confidence, and more choices.

Think about what you want your story to look like in five years. What decisions can you make today that will move you closer to that vision?

As we close out America Saves Week, remember: your future isn’t written, it’s created. Start with one step toward your next goal, and trust that those steps will add up to something extraordinary.

Some content provided by ©America Saves Week ©Decision Partners