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Financial planners spend all day helping their clients use their income to cover costs, achieve goals, and build wealth. It’s no surprise that they have a few budgeting tricks up their sleeves.
Whether you want to save more, spend less, or just maximize every dollar, there are some approaches that work for almost everyone. Here are two financial planners’ favorite budgeting tips, tricks, and hacks.
Use the zero-sum approach
Financial planner Jovan Johnson of Piece of Wealth Planning in Atlanta tells his clients to put every dollar to good use — whether it’s paying bills, spending on something you enjoy, or putting it towards building wealth in the future.
“For me, I personally love the zero-based budgeting method where you assign every dollar a job,” he says. Also called zero-sum budgeting, this budgeting approach essentially turns investing and savings goals into monthly bills and makes sure that every dollar is being spent, saved, or invested properly.
It’s a great way to maximize your money and spending. While it can involve some extra work — you’ll need to track your spending carefully and estimate fluctuating expenses — it can be an easy way to make sure you’re not leaving too much money sitting in your checking account that’s not growing.
Save for your short-term goals in labeled savings accounts
Saving for all of your goals in one place isn’t the most efficient way to save. Especially when you’re keeping long-term savings like an emergency fund mixed with short-term savings like a vacation fund together, it can be hard to keep track of your goals. It can also make it easier to accidentally dip into funds you’ve saved for other purposes.
To keep from overspending and confusion, Johnson recommends labeling savings accounts. “Have accounts for specific goals, like an emergency fund or a vacation fund,” he says. “Just having those funds and seeing the money in there tells you exactly how much you have to spend.”
“Once that vacation fund is done, you have to replenish it. Just having accounts with titles means that you can’t tap into the other accounts and overspend,” he says.
A great way to do this is to use a savings account that allows you to separate savings into different buckets. Several banks, including Ally and Betterment, offer this feature within their high-yield savings accounts. Then, you can label each fund and know exactly what you can spend.
Keep your housing costs under 30% of your income
Financial planner Riley Poppy of Ignite Financial Planning in Seattle tells his clients to budget for their housing costs, especially when planning for a home purchase. He tells his clients to aim to spend no more than 30% of their monthly income on housing.
He says that his figure is a little bit higher than what others recommend. “A lot of financial planners will say 28% of gross income [should go to housing]. That’s a popular one,” he says. “But I find 30% of take-home pay to be pretty good.” In an expensive coastal city like Seattle, the extra 2% can make housing prices a little bit more realistic.
Plan to live on 70% to 80% of your income
If you can live on less than your entire income each month, doing so could help you save for other goals and avoid overspending.
“I try to encourage my clients to live on 70% to 80% of what they make,” Poppy says. “That leaves just a little bit of extra for goal planning, whether that’s travel, long-term investing, or saving for a home.”
Living on all of your income all of the time can mean spending more than necessary, and falling behind on long-term goals, such as retirement and children’s college savings. “If you can live off of 70% to 80% of what you make and do that consistently, it establishes a pretty good habit,” he says.
Once you get used to the lifestyle, you hardly miss the 20% or 30% you’re saving. Says Poppy, “Eventually, it just becomes automatic.”
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