Personal Finances 101

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Here are a few easy tips to help you begin to manage your personal finances in a healthy way.  You do not need any special software or fancy equipment. Managing your personal finances is as easy as tracking spending amounts on a piece of paper and doing some simple math. OK, if you aren’t good at math, you may want to use a calculator. Writing things down and tracking spending in some major categories can help you gain the true picture of your monthly spending.  Just like a diet, it is easy to “skip” tracking something – but in the long run you are just hurting yourself. Begin with these simple guidelines.

1. Use the 50/20/30 rule. This rule helps guide the amount of money being spent in three large categories, Essential Expenses, Financial Priorities, Lifestyle Choices.

a. Essential Expenses = 50% of monthly income. These include: housing, transportation, utilities and groceries.
b. Financial Priorities = 20% of monthly income. These include planning for the future and include retirement contributions, savings and paying off debt. It is generally recommended that you have between 3 to 6 months of living expenses in savings to protect against unforeseen circumstances such as job loss, major auto problems, illness, short term injury, etc.
c. Lifestyle Choices = 30% of monthly income. This category is the personal spending and the fun spending and includes things like cable, internet and phone, pet expenses, restaurants, entertainment (movies, bars, concerts, etc.), and shopping.  Don’t make the mistake that items in this category are “must haves!” Most people don’t actually need cable television, it is a lifestyle choice to have it if your budget allows.

2. When you are budgeting, be sure to only count the amount of money you receive in your paycheck, the money available to you after taxes are taken out.

3. Some people find it difficult to manage daily spending (those in the Lifestyle Choices category) when using a credit or debit card because it doesn’t seem like real money. Try using cash! This way you can’t really “see” the money you are spending, and see how much you have left for the rest of the pay period.

4. Be very careful with credit card purchases. Many credit cards carry high interest rates and it doesn’t take long to make several larger purchases and then then find yourself chasing credit card payments. A good rule to follow: if you don’t have the money in this month’s budget for the item, especially if it is a “Lifestyle Choice” item, don’t buy it! For those of you who are skeptics: a $1000.00 purchase at 10.99% interest will take you about 4.2 years to pay off at $25.00 a month, which includes an extra $251.18 in interest!

References:
Huff Post MONEY, The Blog. (July 12, 2014) How to Budget Your Money With the 50/20/30 Rule. Retrieved from http://www.huffingtonpost.com/learnvest/how-to-budget-your-money-_b_5309....

Wicker, Alden. 50 Personal Finance Tips That Will Change the Way You Think About Money. Retrieved from https://www.themuse.com/advice/50-personal-finance-tips-that-will-change-the-way-you-think-about-money.

TimeValue Software, TCalc Online Financial Calculators. Credit Card Payoff Calculator. Retrieved from http://www.timevalue.com/products/tcalc-financial-calculators/credit-car....

Article Author

Karen Ryan, BS, Health Promotion Specialist

Karen has her Bachelor’s degree in Wellness Coaching and Health Education from Metropolitan State University.  Karen is passionate about health and wellness and is our frontline staff to help connect our members to the most appropriate programs and resources to help them achieve their health goals.  Karen also works with children in the Pediatric Healthy Lifestyle Clinic.  Karen has been with Denver Health since 2014.