While keeping a close eye on spending is vital for financial security, few people enjoy doing so. Several creative approaches for effective budgeting and money management are available.
- The 70% Rule is percentage-based with 70 percent of income for necessary expenses. Followed by 20 percent going into savings by using automated direct deposit. The other 10 percent is for retirement and investing for future financial security. The 70% Rule is useful for those with saving as a priority, and want a simple budgeting method.
- The 50/30/20 Rule is a variation of the 70% Rule, with three categories. First, 50 percent of your income goes toward necessities. Then, 20 percent is for financial goals, such retirement or paying off debt. The remaining 30 percent can be spent as desired. This approach may not work for many people, but can be a good starting point for successful money management.
- Budget by Paycheck uses a calendar to track income and expenses. Color code your paycheck, expenses, and extra money to assign a bill payment to a paycheck on a calendar. Any “extra” money should be given a “job,” such as savings, debt repayment, or fun. This approach is useful if you desire structure and like having a visual tool.
- Envelope Budgeting is a traditional method with labeled envelopes to identify expense categories. Cash for the budgeted amount is put into each envelope. You only spend the amount in an envelope, which provides strong control of your spending. Instead of cash, you may use a card or envelope to record the amount spent for each category to stay within your limit. Several budgeting apps are also available with visual envelopes to monitor spending.
- Gift-card Budgeting manages your money by dividing your spending into categories and loading the amount onto a phone gift card. This system is similar to traditional envelope budgeting. Determine the amounts for various spending and saving categories. Then, buy gift cards for each category, such as a food store card for groceries, which will limit your spending for each budget item. With gift cards on your phone, you will always have them with you and will know the balances. Buying gift cards at moola.com can result in special deals and bonuses.
- You Need a Budget (YNAB) is a software system and app featuring partner budgeting, goal tracking, personal support, and secure data. YNAB emphasizes these principles: every dollar is assigned a category; large expense items are broken into manageable amounts; budget flexibility when situations change; and planning for the future, without scrambling for today. The personalized support and online YNAB community discussions, included in the cost of the software, prepare you for successful budgeting on your own.
- Kakeibo, pronounced “kah-keh-boh” and translates as “household financial ledger,” is used in Japan to manage personal finances. This method emphasizes recording financial activities with physical writing (no apps or computer), and uses four categories: (1) needs, (2) wants, (3) culture, such as books and museum visits, and (4) unexpected, for medical expenses or car repairs. Then, you reflect on these questions: How much do I have available? How much would I like to save? How much am I spending? How can I improve? Kakeibo may not control your spending but it can make you more mindful of how you spend money.
- Zero-based Budgeting gives every dollar a specific task for spending, saving, or investing. This method encourages you to create a revised budget each month based on changes in income or expenses, which provides financial flexibility. This system may not be useful for people with irregular incomes.
- Value-based Budgeting involves allocating income based on importance (value) to you rather than budget categories. While some items need to be paid (housing, food), how much you spend on these items depends on how much you value them. If eating out is a priority, your food budget will be higher than for someone who eats mainly at home. This approach can help you stay within your budget since you created the spending plan based on personal preferences. Beware that saving for a goal might be a low priority but should probably receive stronger recognition.
- Pay Yourself First Budget is simple and emphasizes your financial future. Based on the amount earned, determine how much you want to save. The remaining amount is divided among necessary expenses and other spending. The process can be awkward when a conflict exists between income available and a desire to save a large amount. Many people combine this method with other budget systems to ensure coverage of needed living costs.
Other actions that can make budgeting fun include:
- Money Nicknames. By naming your bank accounts and budget categories with creative names can create a fun attitude and personalized connection for money management activities. Also, use a Sharpie to label your debit and credit cards with a name or a specific use, such as “Hey, bills only!” or “Treat yourself today.”
- Bae Day involves setting aside a specific time, usually on payday, to review your budget and plan your spending. Bae, which stands for “before anything else,” involves a self-appointment to take action before anything else happens to your money. You can make Bae Day fun by dressing up for this self-care occasion, going to a special location, or playing favorite music.
- Money Mate Date helps achieve accountability related to finances. Your Money Mate will keep you in line for financial activities. The relation can involve a quick call to make sure that monthly bills are paid, or an emergency text to avoid impulse buying.
- Arts and Crafts. Create, or locate online, a poster to visually view progress on savings or debt reduction. Color in the poster little by little as you save or pay down student loans. Also consider using photos to represent budget categories or financial goals for more motivating money management activities.
For additional information on creative budgeting ideas, here are some links to click on:
- Have students talk to others for information about budgeting actions that have been successful.
- Have students create a video, poster, or other visual with ideas for creative budgeting activities.
- What are reasons people are unable or unwilling to practice successful budgeting?
- Describe the actions a person might take for effective budgeting.
- Nearly half of U.S. adults have reported that their mental health has been negatively impacted due to worry and stress over the virus, according to a Kaiser Family Foundation poll.
- A new NFCC survey finds situations that immensely exacerbate financial worries include not having enough savings, losing a job and the inability to pay debts.
- Many large health insurance companies as well as Medicare have increased their capacity and coverage for telehealth visits with mental health providers.
Here are some tips from the mental health and financial experts on how best to cope with these common money stressors.
1. Not enough savings
If you find yourself struggling financially and have a limited emergency fund — or none at all — focus instead on what you can control. “First, carefully examine your expenses and reprioritize your spending. Cut out everything but the essentials , such as, mortgage or rent, food, utilities and insurance,” said author and certified financial planner Carrie Schwab-Pomerantz, who is also president of the Charles Schwab Foundation. “If you’re unable to pay a bill, contact your creditors right away. They may be willing to negotiate a payment schedule or waive late fees.
2. Job loss
If you haven’t already, file for unemployment benefits immediately through your state’s program. There will likely be a lag time until you receive your first check.
- Make sure you still have health insurance. You could switch to COBRA to receive the same coverage you had under your employer for the next 18 months, but you have to pay for it yourself at a considerably higher cost than you were paying as an employee. “Do some comparison-shopping.”
- Consider other jobs that you may be able to pursue. Use your down time to learn a new skill or start that side-hustle. Education, health care, and technology companies are among some of the industries hiring remote workers right now.
3. Inability to pay your debts
Nearly half of U.S. adults currently have credit card debt and 13% of them are not paying anything at all or don’t have a plan on how to pay, according to a report by CreditCards.com.
Consider temporarily paying only the minimum on mortgage/rent, car loans and student loans as well, said Schwab-Pomerantz, whose Schwab MoneyWise website has a list of resources to help during the Covid-19 crisis. More help could be available. You may be able to lower or suspend your mortgage payments for up to one year in some cases. Contact your lender. If you’re having trouble paying your rent, talk to your landlord about your situation and your options. Some states and municipalities are providing eviction restrictions for impacted individuals. Many utilities and phone companies have stopped cutting off services for nonpayment. Call them.
For more information, click here.
- Ask students how the corona virus has affected them, their relatives, or friends. What steps have they taken to minimize the effects of the corona virus?
- List the steps to take if you don’t have enough emergency funds to get through this financial difficult period.
- How are millions of Americans coping with stress and anxiety as they deal with the fear and reality of death and disease due to the corona virus pandemic?
- Discuss the economic and emotional worries that are keeping American awake at night.
Kids are no longer using a piggy bank to obtain financial responsibility. Instead, digital tools, such as debit cards and apps, are the basis for learning smart spending and wise money management. Many of these products are prepaid cards that help kids track their spending, and also include customizable oversight features for parents. Some available products include:
- FamZoo (famzoo.com) makes use of parent-paid interest to encourage saving. Common users of the app are preteen and young teenagers, but may also be used for kids from preschool to college.
- Greenlight (greenlightcard.com) allows parents to control the stores at which the debit card can be used. Greenlight plans to introduce an investing feature to move users to a higher level of financial literacy.
- gohenry (gohenry.com) is an app for kids (ages 8 to 18), but may be used by younger children. The emphasis is on building money management confidence in a safe setting while learning to spend and save.
- Current (current.com) is a custodial bank account aimed at teenagers. Parents may also open accounts for younger children.
These products allow parents to channel digital funds to their children to pay weekly allowances. Also, kids may divide their money into accounts for saving, spending, and donating to charity. Most apps have a monthly fee, ranging from $3 to $5.
When using prepaid debit cards with children, consider the following:
- Spend time talking about why the kids want to buy various items, and why certain household tasks earn money and others do not. Expand the Connect the discussion to talk about total family finances as well as money attitudes and values.
- Allow freedom to make spending decisions to give kids experience at managing money, and to make mistakes from which they will learn.
- Ask older kids to buy household items, even though they might be reimbursed. Buying shampoo, toothpaste, and snacks will prepare them for when they are on their own. Also consider billing them for monthly expenses, such as the cost of their cell phone.
For additional information on prepaid debit cards for kids, click here.
- Have students conduct online research to evaluate apps that might be used by parents to teach their children smart spending and wise money management.
- Have students talk to parents to obtain suggestions that might be used to teach wise money management to children.
- What are the financial, social, and relational benefits of children learning smart spending and wise money management early in life?
- Describe some possible money management learning activities for children that do not involve the use of technology.
With growing numbers of video streaming services and product box programs, these subscriptions are becoming the newest budget buster. These seemingly small monthly charges add up, lowering a person’s ability to save along with a potential for increased debt. These ongoing financial commitments leave people with a lower percentage of free cash flow, or unencumbered income.
Subscription service spending is often overlooked especially when the payments are on auto pilot. A $4 or $8 monthly fee may not seem like much. However, research indicates that subscription services are an increasing financial burden as most people underestimate the amount. In one study, 84 percent of respondents estimated monthly spending on these services at about $80; the actual amount was over $110. In addition to video steaming services, people sign up for automatic monthly shipments of beer, wine, contact lenses, cosmetics, meal kits, pet food, razors, vitamins, and other products.
For additional information on subscription services, click here.
- Have students survey several people to determine the types and amounts of subscription services being used.
- Have students create a financial analysis for amounts saved over several years by reducing or eliminating subscription services.
- What factors influence a person’s decision to use a subscription service?
- Describe suggested actions that a person might take to reduce or eliminate subscription services.
Did you know that in 2018:
- 19% of households spent more than their income?
- 46% of individuals lacked an emergency fund?
- 35% of credit card holders paid only the minimum on their credit cards?
In September 2019, the FINRA Foundation released data from its latest Financial Capability Study—one of the largest and most comprehensive financial capability studies in the United States. Among the findings, younger Americans, those with lower incomes, African-Americans and those without a college degree face the toughest financial struggles. More than 27,000 respondents participated in the nationwide study. Conducted every three years beginning in 2009, it measures key indicators of financial capability and evaluates how these indicators vary with underlying demographic, behavioral, attitudinal and financial literacy characteristics—both nationwide and state-by-state.
For more information, click here
- Ask students if they spend more than their income in a given year.
- Ask students if they have a rainy day fund. If not, why?
- Ask students if they pay in full when the credit card bill arrives. If not, why?
- What might be some reasons why almost one in five households spends more than their income?
- Why is it important to have a rainy day fund? Why almost half of Americans lack such a fund?
- Why is it vital to pay credit card bills in full? What are the costs of paying a minimum balance?
“Sometimes the hardest thing about saving money is just getting started.”
This Bank of America article provides a step-by-step guide for simple ways to save money–money that can then be used to pursue your financial goals. To learn more, check out the 8 steps below.
- Record your expenses. Ideally, you can account for every penny you spend for the big items like mortgages, credit cards, and even small items like a coffee and snacks.
- Make a budget. Once you know how you spend, you can compare your income to your expenses and make changes, if necessary.
- Plan on saving money. Your budget should contain a savings category. Ideally, savings should account for 10 to 15 percent of your income.
- Choose something to save for. One of the best ways to save money is to set a goal. Possible goals include saving for a vacation, the down payment for a house, retirement, or anything important to you.
- Decide on your priorities. Prioritizing goals can give you a clear idea of what is most important and helps to remind you why you are saving money.
- Pick the right tools. There are many saving options and the choice often depends on the amount of time before you need the money. Often, money for short-term goals is placed in savings accounts. Money for long-term goals may involve stocks, bonds, or mutual funds.
- Make saving automatic. Banks offer automated transfers between checking and savings accounts. Automated transfers are great because you don’t have to make a decision to save or invest; it just happens.
- Watch your savings grow. Checking your progress every month helps you stick to your personal savings plan.
For more information, click here.
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- Discuss the relationship between income, expenses, and establishing a systematic savings program.
- Help students understand how saving small amounts over time can help obtain goals that can change their lives.
- At the end of the month, many people wonder where their money went! Why is it important to determine how you spend your money?
- How can a budget help you find the money needed to establish a savings program built on the goals you want to achieve?
Many people in our society are not able to save. They are barely able to cover their monthly expenses. However, there are some actions that can help you get on a path to saving.
In the first month, open an online bank account and deposit a minimum amount, such as $5. This is a very important first step. In month two, save $15 (or more) in your online savings account. One way to do this is with Paribus, an online tool that searches various retailers to determine if you are owed money for past purchases as a result of a price drop.
Your goal for month three is to work toward savings $100. This could be accomplished by signing up with market research companies to participate in providing opinions. Or, you could try selling old items online. By consistently using various ideas for earning extra money, you should be able to save $100 a month.
For additional information on starting a savings program, click here.
- Have students to talk various people to determine actions they take to reduce spending or earn extra money.
- Have students create a summary presentation describing actions that might be taken to increase a person’s savings.
- Describe attitudes and behaviors that might result in people not being able to save for the future.
- What are actions you have taken to reduce spending and to earn extra money for savings?
An estimated one-third of recently married couples are surprised by the financial situation of their spouse. A similar number (36 percent) are not aware of their partner’s spending habits. Based on a study by Experian Plc, only 40 percent knew the credit score of their partner.
Men more often hid money from spouses. About 20 percent of men had secret bank accounts about which their partners didn’t know; compared to 12 percent of women. Regarding the maximum amount that they would spend before consulting with their spouse, men replied $1,259; women said $383. Hidden financial information can have a significant adverse effect on the relationship of a newly married couple.
For additional information on newlywed finances, click here.
For additional information on the survey results, click here.
- Have students survey newly-married people about their disclosure of financial information to their spouse.
- Have students create a list of problems that might arise between newly-married people who do not inform their spouse about their personal financial information.
- What financial information would be most important for newly-married people to disclose to their spouses?
- How could a lack of disclosure of financial information to a spouse create relationship difficulties?