An IMCU Lifestyle Guide: Basic Budgeting Tips And Skills

BASIC BUDGETING TIPS AND SKILLS

There’s a powerful financial tool that can help you make the most of your money. Month
after month, it can help you keep more of what you earn and cut your wasted expenses
to a minimum. This amazing tool has a very simple name. It’s called organization. The
better you get at organizing your finances, the less money you’ll waste, and the harder
the money you have will work for your goals. Indiana Members Credit Union created
this handy guide to help you take control of your finances so you can make the most of
every dollar. It includes plenty of practical advice, along with resources that can make
organizing your finances much easier.

WHAT’S A BUDGET — AND WHY DO YOU NEED ONE?
A budget is like a GPS system for your personal finances. If you go driving somewhere
new without your GPS, you might make a wrong turn and have to spend extra time
finding your way back. Without a budget plan, you may make the wrong financial
decisions and struggle to know where you stand at any minute. Unexpected bills show
up in the mail, or the kids need lunch money right after you’ve spent every penny you
have. A budget gives you clear guidelines for spending and managing money — and for
what you can do with any extra that’s left over.

Having a budget makes it easier to plan for your financial future. When you think about
the things you’d like to do in the coming months or years — whether that’s buying a car,
taking the family to Disney World, or sending your kids to college — a budget helps you
see the steps you’ll need to take. It also gives you a way to measure your progress along
the way.

DEVELOPING A BUDGET DOESN’T HAVE TO BE HARD
Fortunately, creating a budget doesn’t have to be difficult. One simple way is tracking
everything you spend during one month. Whether you prefer tracking things with paper
and pencil, or like to use software such as Quicken, all you need to do is choose the
system that works best for you. Include every purchase, including that dollar you drop
in the vending machine every afternoon. When the month ends, put your expenses
into categories such as car costs, utilities, and groceries. Add up all the amounts and
subtract them from your take-home pay.

If you’re like most of us, you probably spend more than you’d like. So your next step
is to write down how much you want to spend in each category. That’s your budget. As
you go through the month, keep track of your spending and make sure you don’t exceed
your budgeted amount. Just paying attention to spending is often enough to help people
spend less. At the end of the month, review how well you’ve done, and make new targets
for the next month.

THE 50-20-30 RULE
One of the best guidelines for developing personal budgets is what’s known as the 50-
20-30 rule. It gives you an easy way to divide your expenses into three categories:

1. 50 percent of your income is for living expenses and other essentials, such as your
mortgage or rent, your groceries, and the cost of getting to work (whether you drive or
use public transportation).
2. 20 percent is for your financial goals, including saving for the future, investing, and
paying off any debts you have (especially credit card balances).
3. the remaining 30 percent is for flexible uses, such as things that you want but may not
really need (like dining out, travel, or going to the movies).

WATCH FOR BUDGET LEAKS
If you’re falling short of your budget goals, the problem might be what we call “leaks” in
your finances. A dripping faucet doesn’t seem bad but can cost you a lot of money over
time. The same is true with little purchases that you make and don’t really think about.
It’s as if money is leaking out of your pocket, and you don’t see it.

A great example is coffee. If you stop at the coffee place every morning on the way to
work and order one of those fancy lattes, you’re probably paying $5 for it. Not a big deal? Well, that $5/day is the same as over $100 a month — and it adds up to more than $1,200 a year! What could you do with an extra $1,200?

If you carefully track your spending, you’ll start to spot those financial leaks. Eliminate
them, and you’ll discover that you may have more money than you realize.

PAY YOURSELF FIRST
Everybody wants to start saving, but it’s hard to do. Each time you think about putting
money aside, some unexpected expense pops up, and you’re out of money again. However, saving is so important for so many reasons.

Fortunately, there’s an easy way to start saving. It takes some discipline, but if you try it,
you’ll discover that it works surprisingly well. It’s an old-fashioned concept that’s called
“paying yourself first.”

Each time you get paid, before you pay a single bill, pay yourself by putting a certain
amount into a savings account. How much? That depends on you. For some people, it
might $100. Others might decide to put 10 percent of their paycheck in the account. No
matter what amount you choose, you need to do it with every single paycheck. After
you’ve paid yourself, you can start paying your other bills.

Over time, that savings account will start to grow. Let’s say you get paid twice each
month, and you resolve to put $100 from each paycheck in your savings. By the end of
the year, you’ll have saved over $1,200, including interest. After two years, you’ll have
close to $2,500.

Paying yourself first may not be easy, but it’s effective and powerful. It may force you
to give up some luxuries, like eating out less often or only going to the movies twice a
month instead of every week. But as your savings grow, you’ll feel the peace of mind that
comes with financial security.

WHY SAVINGS IS SO IMPORTANT
You may have heard your grandmother or another older relative talk about “saving for
a rainy day.” Of course, they weren’t discussing the weather. When people talk about
saving for a rainy day, what they mean is putting money aside for life’s unexpected
expenses.

A lot of people spend every cent they have. So when the washing machine breaks down,
or the car needs new brakes, or little Billy breaks his arm, they’re devastated. They don’t
have any money to cover the costs, so they’re forced to use credit cards or make extra
payments for month after month.

When you save for a “rainy day,” you create a cushion that can protect you when those
unexpected things happen. If you need to replace that flat tire, you’ll be able to pay cash
instead of adding to the credit card. If Billy brings home a note from school saying he
needs $20 for the field trip, you’ll have it. And, if you keep saving for that rainy day, you’ll be able to build up a pretty nice nest egg.

Looking for a simple way to save for a rainy day? One way that works for many people is a change jar. Every day, take any loose change (and maybe any dollar bills) from your purse or pocket, and put it in a jar. Once the jar is full, bring it in to IMCU, and deposit the coins and bills in a savings account. Start filling the jar once again.

DO YOU HAVE AN EMERGENCY FUND?
Unexpected expenses are a fact of life. Fortunately, there’s a simple way to make sure
they don’t throw you off track. It’s called an emergency fund, and it gives you a way to
prepare for those surprises. The key is to put some money into a savings account (such
as our Membership Savings or Money Market accounts) each month. Over time, you’ll
build up a balance that will be there when the unexpected happens.

It’s a good idea to keep at least three months’ worth of income in your emergency fund,
but don’t let that goal stop you. Anything you can sock away will be there to help you
when you need it. Once you have an emergency fund, resist the temptation to use the
money for non-emergencies. Yes, you may want to go out for a nice dinner or have a
weekend getaway, but if you “borrow” from your emergency fund, you’ll just put yourself back in trouble the next time a real emergency arises.

WHERE SHOULD YOU KEEP YOUR SAVINGS?
A savings account is a safe and secure option for growing your funds. To assist you in
saving for short or long-term needs, IMCU offers savings and money market accounts,
certificates of deposits, health savings accounts, IRAs and more.

Our Membership Savings Account is an ideal choice for basic savings, and all of our
members begin with one. Dividends are compounded monthly and credited on the
last day every month. Our Money Market Savings Account is designed for people who
maintain higher balances and will have fewer deposits and withdrawals. Learn more
about both of these and our other options by visiting www.imcu.com or any of our
locations.

LETTING TECHNOLOGY DO THE HARD WORK
Budgeting and managing your money is easier than ever, thanks to a variety of software
and apps that have been designed to simplify personal finances.

COMPUTER SOFTWARE
If you prefer to manage your finances using your computer, there are several outstanding software packages. Perhaps the best-known is Quicken, which is available in a variety of versions for everything from simple money management to the complexities of running a business from your home.

Another option that’s great for beginners is You Need A Budget, which helps you track
your spending while teaching you basic money management practices. Moneydance is a
more sophisticated program for people whose finances may be a bit more complex, as is
AceMoney, which also tracks investment performance.

COMPUTER SOFTWARE. If you prefer to manage your finances using your computer, there are several outstanding software packages. Perhaps the best-known is Quicken, which is available in a variety of versions for everything from simple money management to the complexities of running a business from your home.

Another option that’s great for beginners is You Need A Budget, which helps you track
your spending while teaching you basic money management practices. Moneydance is a
more sophisticated program for people whose finances may be a bit more complex, as is
AceMoney, which also tracks investment performance.

SMARTPHONE APPS. If your phone is the main tool that helps you manage your busy life, you may prefer one of several apps that are available free or at low cost. One of the best-known is Mint, which allows you to create and track budgets, and alerts you when your spending is reaching limits.

Simple apps include Fudget, mevelopes, and Penny. LearnVest, Dollarbird, and BillGuard
are other examples. Which is right for you? The best approach is to visit your phone’s
app store and look around. Find the ones that have the features you need, and test to
see how easy it is to work with. Most offer a free or low-cost trial period, so you can see
whether you enjoy using them.

PLANNING FOR THE FUTURE

One of the most important reasons to take control of your money is to help you meet
your long-term goals — and one of the most important goals for nearly everyone is a
financially secure retirement.

Indiana Members Credit Union has created a special guide focused on retirement
planning, and we’ll be happy to give you a copy. Meanwhile, we’ve summarized some of
the key points here.

WHEN SHOULD YOU START PLANNING?
The best time to start planning for retirement is many years before you expect to retire.
The main reason for that is the power of compound interest. The money you save or
invest for retirement grows over time, as it earns interest and its value increases. When
the value increases, so does the interest and additional value you’ll receive.

Compare two people, both of whom put $2,000 each year into an investment that grows
at an average rate of 10 percent annually. The first investor starts at age 25 and makes
that $2,000 annual investment for just ten years, and then she stops investing. The
second starts at age 34, and makes his investment for 30 years. Who ends up with more
money? Amazingly, it’s the first investor. Although she only invested a total of $20,000,
by the time she reaches age 65, her fund has grown to $556,197. The second person
invested a total of $60,000, but because he started later, his fund only grew to $328,988
by age 65.

HOW MUCH INCOME WILL YOU NEED?
One of the most common questions asked by people approaching retirement is how
much money will I need to live on? There’s no single answer, because it depends on your
personal needs and how you plan to spend your retirement years. If you enjoy dining out at nice restaurants and want to see the world, you’ll need more income than someone who prefers to stay around the house.

Because you probably won’t be working, you won’t have to worry about paying for your
daily commute or maintaining the wardrobe for your job. Most experts suggest that the
average retiree will need about 70 percent of the income he or she had in pre-retirement
years to maintain the same kind of lifestyle. Retirement incomes generally come from
three sources: pension and retirement plans, Social Security, and retirement savings or
investments.

NEED SOME HELPFUL ADVICE?
There’s a team at Indiana Members Credit Union that can help you with questions about
your retirement finances and estate planning. Just ask the manager of your nearest
location to connect you with them!

REVISE YOUR BUDGET REGULARLY
As the years pass, your financial situation and your needs are going to change. You may
be working in a different job, living in a different community, and your children are going to grow up and one day live on their own.

That’s why it’s important to look at your budget from time to time and make adjustments. For most people, it’s a good idea to examine your budget and financial situation once a year. A great time to do that is right after you file your income taxes, because you’ll have all your financial information together.

Check to see how close you are to reaching your goals, and determine whether you need
to adjust the amount you’re saving. It may be time to focus on some new goals, or to
make some changes. An annual review will help you stay on track and make the minor
changes to reflect changes in your life.

HELPFUL RESOURCES
If you’re looking for help with the budgeting process or want an easier way to manage
your money, there are plenty of resources that can help. We’ve included several here.

APPS
BILLGUARD. Tracks spending and offers identity protection tools.

FUDGET. Good for tracking short-term budgets and work expenses.

GOODBUDGET. Like using envelope budgeting to control your spending by category.

LEVEL MONEY. Helps you determine how much you can spend each day and week.

PENNY. Offers graphics and friendly advice about your spending habits.

WEBSITES
The Birdy
http://www.thebirdy.com
Tracks your daily spending and charts your habits and trends.

Daily Worth
http://www.dailyworth.com
Down-to-earth financial articles and advice.

LearnVest
http://www.learnvest.com
An all-in-one financial site full of tools and advice

Mint
http://www.mint.com
Comprehensive and user-friendly financial tools.

NerdWallet
http://www.nerdwallet.com
Helpful advice and tools for choosing credit cards.

BOOKS
AgeProof by Jean Chatzky and Michael F. Roizen

How to Retire Happy, Wild and Free by Ernie Zelinski

Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! By Robert Kiyosaki

The Total Money Makeover by Dave Ramsey

You Are a Badass at Making Money by Jen Sincero

*Please note: IMCU does not provide tax advice and you should consult your attorney
with any legal and tax related questions.

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