Managing personal finances effectively is essential for achieving financial stability and meeting long-term goals. Various budgeting methods offer structured ways to handle money, each tailored to different spending habits and financial objectives.

This article will explore four popular budgeting methods: the Envelope System, Zero-Based Budgeting, the Pay Yourself First approach, and Proportional Budgeting (50/30/20 rule). Each method provides unique benefits and can be implemented to suit individual needs, whether you’re looking to curb overspending, enhance savings, or align your spending with your financial goals.

Four Popular Budgeting Methods

1. Zero-based Budgeting

Zero-based budgets account for every dollar. Your income minus your expenses should equal zero. However, this doesn’t mean you want to spend every dollar. This strategy also accounts for money you save or invest.

Zero-based budgeting is excellent for those who understand their spending but want to know how much money is funding each expense. This budget also helps you see where to cut back and save more.

How the Zero-Based Budgeting System Works

1. Justification of Expenses: Unlike traditional budgeting, which often modifies the previous year’s budget to make adjustments, zero-based budgeting starts from scratch — every dollar spent needs to be justified as if the budgets were being created for the first time.
2. Identification of Needs: Departments aren’t given money just because they spent it last year. Instead, they must justify each of their expenses as necessary for operation.
3. Prioritization of Spending: Funds are allocated based on how essential the expenses are to the organization’s goals. This process forces companies to prioritize expenses, which can lead to more strategic decision-making.
4. Cost-Benefit Analysis: Each department evaluates the cost-effectiveness of different spending areas and proposes its budget based on detailed needs and benefits analyses.
5. Approval and Revision: Top management reviews the proposed budgets and adjusts them as needed to align with the organization’s financial capabilities and strategic objectives.

2. Envelope System

Envelope budgeting is choosing how much money you spend in specific categories and putting it aside in real or virtual envelopes. Each envelope contains the entire amount of money available to spend on that expense for the month.

The goal is to keep your spending in check by only spending the money in each envelope. When the envelope is empty, you shouldn’t spend any more money on that category until next month, when you refill the envelope.

How the Envelope Budgeting System Works

1. Budget Categories: You start by defining your monthly budget categories, such as groceries, entertainment, utilities, transportation, etc.
2. Envelope Preparation: You prepare an envelope for each category and label it accordingly.
3. Allocating Money: After you receive your income, you allocate a predetermined amount of cash to each envelope based on your budget plan. This amount is what you can spend for that category for the month.
4. Spending: Use the cash from the respective envelope when you need money. For example, buying groceries takes money from the “groceries” envelope.
5. Monitoring and Adjusting: Once an envelope is empty, you can’t spend any more in that category until the next budget cycle begins. If there’s money left over, it can be saved or reallocated to other categories.

Using an online budgeting app is much easier than physically putting cash into many different envelopes (safer, too). Rocket Money is the budgeting app I use to track my expenses, set reminders to pay certain bills, and build my budget. You can also use the envelope method with Rocket if you subscribe to their premium features. The cost is $4 a month (well worth it for me)

3. Pay Yourself First

Paying yourself first is precisely what it sounds like. You fund your savings and investing goals first and then fill in the rest of your budget.

If you have a trip coming up in 10 months that will cost $1,000, you start each month by allocating $100 into your travel account and allocate funds to your other savings and investing goals.

How the Pay Yourself First Budgeting System Works

1. Identify Savings Goals: Identify your financial goals, such as saving for retirement, accumulating an emergency fund, or setting aside money for a large purchase.
2. Determine Savings Amount: Decide on a specific amount or percentage of your income that you want to save. This should be based on your financial goals and what you can realistically afford while meeting your basic needs.
3. Automate Savings: Set up automatic transfers from your checking account to your savings account, investment account, or retirement fund as soon as you receive your paycheck. This ensures that the designated amount is saved before you can spend it.
4. Budget Remaining Funds: After your savings have been automatically deducted, use the remaining money to cover all other budget categories like housing, utilities, groceries, and entertainment.

4. 50/30/20 Budget

Proportional budgets look less at specific categories and more about where your money should go. The two most common ones are the 50/30/20 rule and the 80/20 rule.

How the 50/30/20 Budgeting System Works

1. Divide Income into Categories:
   • 50% Needs: This portion of your income covers essential expenses you cannot avoid, such as rent or mortgage payments, utilities, groceries, transportation, health insurance, and other debts.
   • 30% Wants: This part includes all non-essential expenses you could live without if necessary. These might include dining out, entertainment, vacations, luxury items, and other discretionary spending.
   • 20% Savings: This final portion is allocated to your financial future, including savings, investments, retirement funds, and debt repayments beyond the minimum payments included in the needs category.
2. Apply and Adjust: After categorizing your income, apply these proportions to manage your monthly finances. You can adjust the specific percentages based on your financial goals and circumstances, such as focusing on paying down debt faster or saving for a large goal.

The 80/20 budget is simple–you live on 80% of your income and save the other 20%. These are great for people wanting a less restrictive budget.

Why Should You Budget?

Budgeting helps you achieve short- and long-term financial goals. If you plan a trip for next year and use credit cards to pay for it, budgeting can help you avoid that. Every month, sock away a little for that trip, and before you know it, you’ll be able to afford it without going into debt.

Budgeting is also a critical tool for financial management, serving as a roadmap that guides individuals and businesses toward fiscal stability and success. By meticulously outlining where money should be spent and how much should be saved, budgeting helps avoid the pitfall of living paycheck to paycheck. It ensures that every dollar is allocated purposefully, helping to curb unnecessary spending and prioritize essential expenses.

This discipline is crucial for anyone aiming to achieve financial goals, whether maintaining daily operational costs, saving for a dream vacation or preparing for a comfortable retirement. Moreover, a well-planned budget can act as a financial buffer, setting aside funds for unexpected expenses and reducing the likelihood of needing to incur debt.

Tips for Successful Budgeting

Sticking to a budget can be difficult because we don’t like telling ourselves “no,” and budgeting can feel like that at first. 

When you’re struggling and want to spend money on something you don’t need, you can remind yourself, “I’m saying no now to say yes later.”

Here are some quick tips for creating and sticking to a successful, stress-free budget:

• Have a goal so that budgeting seems like a tool and not a constraint
• Be realistic and set goals that are feasible on your income
• Try different methods and find the one (or two) that works best for you
• Don’t be afraid to change your budget as your life and priorities change

Final Thought on Different Budgeting Methods

Budgeting should be a tool and not a limitation. It may be helpful to think of it as a spending plan. You’ll always have a money goal to work towards buying a home, replacing a vehicle, paying off debt, saving for a vacation, replacing broken appliances or furniture, and even paying a medical bill. The list is endless. So, the point is that you don’t want to budget and stop once you reach one goal. You want to keep going and work towards another goal on your list.

Choosing the right budgeting app and method can transform your financial life, offering a structured path to achieving your economic goals. Whether it’s the hands-on control of the Envelope System, the meticulous scrutiny of Zero-Based Budgeting, the disciplined saving of the Pay Yourself First approach, or the balanced allocation of the Proportional Budgeting method, each strategy offers unique advantages tailored to different financial needs and lifestyles.

By understanding and applying these methods, you can gain greater control over your finances, reduce financial stress, and move confidently towards a more secure and prosperous future. Remember, the best budgeting approach is one that you can stick with consistently—so choose wisely, adjust as necessary, and take that first step toward mastering your financial destiny.

The post 4 Popular Budgeting Methods – Which One Works Best for You? appeared first on Doughroller.

Even more important is sticking to and maintaining a stress-free budget. It’s not enough to create a budget one day, follow it for a few months, and then think you’re healed. A budget is an ongoing financial process that should last your entire life, and keeping it as stress-free as possible ensures it lasts a good long time.

I will outline five important things you can do when creating and using your budget to give you the best chance to keep it going.

1. Start Your Budget with Clear Goals

Define what you want to achieve with your budget, whether paying off debt, saving for a vacation, or simply ensuring you don’t spend more than you earn. Clear goals give your budget purpose and help you stay motivated.

Direction and Motivation: Whether aiming to reduce debt, save for a big purchase like a house or a car, or ensure everyday financial stability, having a defined objective helps you stay motivated. When you know what you’re working towards, making the tough decisions to restrict spending in certain areas is easier.

Measurable Outcomes: Goals make the abstract concept of “saving money” tangible and measurable. You can easily track your progress by setting specific targets (like saving $200 monthly towards an emergency fund). This provides a sense of achievement as you reach milestones and allows you to adjust your strategies if you find you’re not on track.

Prioritization of Resources: Knowing that you want to pay off $10,000 in student debt within five years can help you decide how much money to allocate to debt repayment versus other expenses. This prioritization ensures that your spending and saving patterns align with your most important financial objectives.

Decision-Making Framework: When faced with financial choices, you can refer to your goals to guide your decisions. This can be particularly helpful in avoiding unnecessary spending. For example, if your goal is to save for a vacation, this might motivate you to cook at home rather than dining out.

Long-Term Vision: Goals encourage a long-term outlook on your finances, essential for building wealth and financial security. Setting short-term (saving for holiday gifts) and long-term (retirement savings) goals ensures that your budget addresses all aspects of your financial health.

Stress Reduction Tip #1: Knowing what to do financially to meet your goals can significantly reduce stress. Uncertainty about where you stand financially often leads to anxiety; clear goals and a structured budget can alleviate this by providing a predictable path forward.

2. Always Use the Right Tools (and Apps)

Use intuitive and easy-to-use tools, such as a simple spreadsheet, a budgeting app like Rocket Money or YNAB, or a pen and paper. The less hassle you have logging your expenses and income, the more likely you are to stick with your budget.

Efficiency: The right tools can make tracking your income and expenses much more efficient. Modern budgeting tools often automate data entry and categorization, pulling information directly from your bank accounts and credit cards. This reduces the time you spend manually inputting data and minimizes errors, making the budgeting process quicker and more accurate.

My personal budgeting app of choice is Rocket Money. With Mint’s closure, I moved to Rocket Money roughly six months ago and quickly integrated all of my accounts with their platform. Connecting accounts was easy, and I pay just $4 a month for their premium service.

Customization: Everyone’s financial situation is unique, so a tool that works well for one person might not be the best choice for another. The right budgeting tools will offer customization options that allow you to tailor your budget to your specific financial goals and lifestyle. For instance, if you have variable income (like that from freelance work), you might prefer a tool that can adapt to fluctuating monthly earnings.

Real-Time Tracking and Alerts: The best budgeting apps provide real-time updates on your spending and alert you when you’re approaching your budget’s limits. This can help prevent overspending and allow you to adjust your spending on the fly, which can be useful for staying on track financially.

Insightful Reporting: Intuitive tools often have powerful analytics to help you understand your spending habits over time. They can generate reports that show trends in your expenses, savings, and other financial metrics. These insights can be invaluable for making informed decisions about your finances, allowing you to identify areas where you can cut back or need to allocate more resources.

Integration: Top-of-the-line budget software will integrate smoothly with other financial tools and platforms you use. This might include your bank, investment portfolios, or debt management tools. Integration can provide a comprehensive view of your financial health, making it easier to see the big picture and make strategic decisions.

User Experience: An intuitive and easy tool is more likely to be used consistently. If the interface is clunky or the process is too complicated, you’re less likely to keep up with your budgeting. On the other hand, a tool that fits well with your tech-savviness and personal preferences encourages regular use and can make budgeting a less daunting task.

Accessibility: What happens if you’re on vacation and alerted of a charge you didn’t make? Accessibility ensures that you can always check in on your financial status, update your budget, and make changes as needed, no matter where you are.

3. Automate Everything You Can

Set up automatic transfers to your savings account and automate bill payments where possible. Automating these processes reduces the mental load of remembering to make transfers and payments.

Consistency in Saving: Automation makes saving money effortless. By setting up automatic transfers to your savings or investment accounts, you ensure that a portion of your income is saved before you have a chance to spend it. This “pay yourself first” strategy is highly effective because it removes the temptation to skip savings in favor of unnecessary spending.

Avoiding Late Payments: Recurring bill payments can help avoid late fees and penalties associated with missed due dates. It also maintains your credit score, as on-time payments are a significant factor in its calculation. Once set up, you don’t have to remember every bill’s due date, reducing mental clutter and financial risk.

Budget Discipline: By automating your essential expenses and savings, you create a system that operates on your budget’s principles without your ongoing input. This leaves less room for impulse purchases and helps maintain your financial goals even during periods of low personal motivation.

Time Efficiency: The time you spend paying bills, transferring money to savings, and managing routine financial transactions can be used for other activities, whether productive or purely recreational. This can make the personal finance management process more efficient and less time-consuming.

Optimized Cash Flow: Automating your finances allows you to synchronize your cash inflows and outflows better. For example, scheduling bill payments shortly after your payday ensures you cover your essential expenses first. This optimization can help prevent situations where you might be short of funds when needed most.

Building Financial Resilience: When consistently saving and investing without manual intervention, you build up financial reserves and assets to support you through economic downturns or personal financial emergencies.

Stress Reduction Tip #2: Knowing your critical financial tasks are handled automatically can significantly reduce stress. You won’t have to remember due dates and transfer amounts, freeing up mental space for other more important or enjoyable tasks. This peace of mind is one of the significant hidden benefits of automation.

4. Keep Your Budget Simple

Don’t create an overly complicated budget that you can’t follow. Start with broad categories (housing, food, transport, and leisure) and adjust as necessary. This simplicity will make tracking and maintaining your budget easier without feeling overwhelmed.

Increased Likelihood of Adherence: A simple budget is easier to follow. Complicating the budgeting process with too many categories or overly detailed tracking can become overwhelming, which might deter you from sticking to it consistently. In contrast, a simple budget makes it easy to see where your money is going at a glance, encouraging regular use and adherence.

Ease of Understanding: Simplicity ensures you can quickly understand where you stand financially. When a budget is easily interpreted, you’re more likely to make informed decisions quickly. This is particularly helpful in everyday situations where you might need to make swift decisions about spending or saving.

Flexibility: When you start with a few broad categories, adjusting these is easier as your financial situation changes without overhauling the entire system. This flexibility can be especially beneficial during financial uncertainty or when you experience significant life changes (like a new job or moving to a new home).

Reduces Mental Load: Keeping the budget simple reduces the cognitive load involved in financial planning. The less time and mental energy you spend figuring out your finances, the more you can focus on other aspects of your life. This can reduce stress and make managing your money a less daunting task.

Quick Setup and Maintenance: You can often get started with just a few clicks in a budgeting app or a few entries in a spreadsheet. The ease of maintenance ensures that updating your budget doesn’t become a chore you dread but rather a quick check-in that’s part of your routine.

Facilitates Problem Identification and Solving: When your budget is simple, it’s easier to identify areas where you’re overspending or might need to cut back. Complex budgets can obscure these issues under layers of data and categories. Simplification helps highlight financial habits that may need adjustment, allowing quicker intervention.

Motivational: Seeing direct results from broad categories can motivate you to continue good financial practices. For example, seeing your savings grow in a “travel” category might encourage you to keep finding ways to save more money.

5. Review and Adjust your Budget Regularly

Your income and expenses will change over time, and so should your budget. Regularly review your monthly or quarterly budget to ensure it still fits your needs and adjust it as your financial situation changes. This flexibility can help prevent stress caused by sticking rigidly to a budget that no longer reflects your reality.

Adaptation to Changing Circumstances: Your financial situation can change due to various factors—changes in income, unforeseen expenses, new financial goals, or life events like marriage, having children, or retirement. Regular reviews allow you to adjust your budget to reflect these changes, ensuring it always aligns with your current financial reality.

Prevention of Budget Drift: Even the best-planned budgets can drift away from their intended targets over time. Regular reviews help catch this drift early. For example, spending in certain categories, like dining out or entertainment, gradually increases without conscious intent. Regular check-ins allow you to identify and correct these deviations before they become entrenched habits.

I like to stop by Cumberland Farms and pick up a coffee when I can. Last month, my budget apps showed me I purchased 18 coffees for $34, which was a dozen more than the previous month. I had no idea I was making so many trips!

Optimization of Spending: As you track your spending and review your budget, you’ll identify areas where you can save money. Perhaps certain expenses, once deemed essential, are no longer necessary, or you might find more cost-effective alternatives for services and goods you regularly use. Regular adjustments ensure that every dollar you spend is used as efficiently as possible.

Enhancement of Financial Goals: Your priorities might change over time, requiring shifts in allocating your resources. Regular budget reviews allow you to reassess your financial goals—like saving for a home, investing in education, or preparing for retirement—and adjust your spending to support these goals better.

Improvement in Financial Awareness: Consistently reviewing your budget enhances your awareness of your financial habits and tendencies. This increased awareness can lead to better financial decisions, such as avoiding impulsive purchases or recognizing the need for an emergency fund.

Encouragement of Financial Discipline: Regularly reviewing and adjusting your budget reinforces financial discipline. It becomes a routine check that holds you accountable for your financial decisions and encourages you to control your finances.

Facilitation of Long-Term Planning: With regular updates, your budget becomes a dynamic tool that manages your current financial status and helps you plan for the future. Adjusting your budget to account for long-term goals ensures that you always work towards these objectives, whether five, ten, or thirty years away.

Stress Reduction Tip #3: Keeping a regularly updated plan to reflect your financial situation can reduce stress. It provides confidence that you are on track to meet your financial goals or, if you’re off track, that you have identified this issue and are making adjustments.

Final Thought on Creating a Stress-Free Budget

Watching the money come in can be fun, but watching the money go out can be stressful. Over time, the inclination is to slowly fade out of caring until you get a credit card bill in the mail that shakes you back into budget mode. This teeter-totter of caring about your day-to-day spending continues until the day you retire, and sadly, a lack of focus can cost you hundreds of thousands of dollars.

Pay attention. You don’t have to monitor every penny that crosses your path, but you do have to stay mindful of the monthly, annual, and overall picture. A smart set-up today with very light elbow grease will keep your budget humming for years.

The post 5 Simple Ways to Keep a Stress-Free Budget appeared first on Doughroller.

Regarding personal finance, the key word is “personal.” There are no one-size-fits-all rules for running your budget, savings, retirement planning, or other aspects of your financial life.

That said, some general, tried-and-tested rules can be useful for planning your financial life. While you might decide to tweak these rules in the application, they can help guide your financial decision-making.

So, without further ado, here are 35 money rules of thumb that will help you rock your budget (and retirement savings, future financial planning, and more!).

Basic Money Rules of Thumb

1. Pay yourself first. This old rule of thumb helps you save rather than spend all your money. Even if your budget is tight, put some money into savings as soon as you get paid. Saving first, rather than last, means you’re much more likely to save money instead of spending it.

2. Add your raise to your savings account. Don’t move significantly above that once you’ve achieved a salary that funds a lifestyle you’re content with. When you get a raise, put it into savings rather than spending it. This can help avoid lifestyle inflation while significantly growing your savings.

Best Savings Account Deals

• Barclays Online Savings – A Barclays Online Savings Account offers a high-yield savings option with no monthly maintenance fees and a competitive interest rate currently at %. This account allows for easy online management and requires no minimum balance.
• Discover® Online Savings Account Member FDIC – A Discover Online Savings Account provides an attractive interest rate with no monthly fees or minimum balance requirements. It features easy online and mobile access for convenient account management and includes tools like automatic savings plans to help users grow their funds effectively. The current APY is %.

Related: Here’s a list of high-yield savings accounts.

3. When an appliance breaks, buy a new one if the appliance is 8+ years old, or the repair would cost more than half the replacement cost. This goes for things like fridges, TVs, dishwashers, etc. Get an estimate on the repair cost. If that cost is 50% or more of the replacement cost, you’re usually wiser to replace the broken appliance. And for older appliances, you might consider doing the same even if the repair costs are lower. Older appliances are more likely to have subsequent issues with other parts.

4. Use 12% of an unexpected windfall for a treat, but bank the rest. Use a small percentage to treat yourself immediately, whether a gift, an inheritance, or an unexpected bonus. Put the rest in the bank, and give yourself a few months to think about the wisest way to spend that unexpected money.

Budgeting

5. Try the 50/30/20 rule for budgeting. If you’re new to budgeting, try allocating 50% of your take-home pay towards necessities (food, shelter, utilities, clothing, etc.), 30% towards lifestyle choices (vacations, gym fees, hobbies, cell phone plans, etc.), and 20% towards financial goals and priorities (extra debt payments, savings, etc.). The 50-30-20 budget isn’t perfect, but it can be a good place to begin.

6. Track at least your problem spending areas. Some people like a very detailed budget. Others, not so much. If you don’t want to track every line item, track at least those areas where you tend to overspend, whether dining out, buying new clothes, or spending on kids’ items. This can help you control your spending without being bogged down by an over-detailed budget.

7. Spend about 10-15% of your budget on food. This includes groceries and dining out. Find places to cut back if you struggle to keep your budget within this range.

8. Allot 2-10% of your budget for personal items. This includes items like entertainment, getting your hair cut, and buying clothing, which would take up no more than about 8% of your monthly budget. This is a flexible area, though, and you can always cut back if you need to save more money.

9. Use a cashback credit card for purchases and pay the balance in full each month. There are credit cards that pay cashback as high as 5%. Using a cashback card to make routine purchases and pay off the balance in full each month to avoid interest charges will be like getting a discount on everything you buy. Check out the best cashback credit cards and choose the right one.

Savings and Investing

10. Save three to six months’ expenses in an emergency fund. There are many different rules of thumb for this one, but this one makes the most sense for most people. Remember, these are expenses, not income. And if you’re in a volatile field of work or the economy is in a downturn, consider saving eight or even 12 months’ worth of expenses.

11. Use the rule of 72 to determine how long it will take for your investment to double. To use this rule, divide 72 by the expected growth rate of your investments, expressed as a percentage. For instance, if you expect to earn 10% annually, doubling your money takes about 7.2 years.

12. Aim to have your portfolio double about every ten years. How do you know if your investments are on track and growing well? One rule of thumb is that your well-managed portfolio should double every ten years. Your mileage may vary, but if you’re not even close to doubling after a decade, consider rebalancing your investments.

13. Earn $100s with a Sign-Up Bonus Credit Card. Did you know there are hundreds of credit card offers paying signup bonuses worth hundreds of dollars? If you normally spend at least some time on credit cards, plan to periodically apply for a new card with a generous signup bonus. It could help you add several hundred dollars to your savings each year.

Debt

14. Put no more than 30-35% of your net income towards minimum debt payments. This is the rule if you have a mortgage. If you don’t have a mortgage, you should put no more than 30-35% of your net income towards minimum debt payments and monthly rent. This is a somewhat high figure, and it’s always better to have even less of your income devoted to debt. However, the 30-35% range is what mortgage lenders, in particular, will look at when considering the debt-to-income ratio.

15. Pay off your highest-interest debt first. There is much disagreement about debt repayment methods, but this is the one that will save you the most and get your debt paid off most quickly. You might want to deviate if you’re trying to boost your credit score quickly. In this case, first, pay off any credit cards that are currently maxed out. Then, pay off debt from the highest to the lowest interest rate.

16. Debt Payoff Strategy Plan B: Payoff your smallest debt first. Dave Ramsey, also known as the Debt Snowball, made this strategy popular. It’s a simple concept based on paying off the smallest debt first since it’s the most doable. Once that debt is paid, you allocate the monthly payment you would have made on the smallest debt to the next smallest debt, which should at least double the payment on that next debt. That should enable you to pay off the second smallest debt in a short time frame.

As you work your way up the debt ladder, taking out the next smallest debt gets easier due to the extra cash flow from the smaller debts already paid until you’re ready to tackle your biggest debt. By then, it may not seem intimidating because you’ll have the extra cash flow and the successful track record from paying off your smaller debts. It’s a solid strategy if paying off your highest-interest debt first is too tall a task.

Retirement

17. Save 10-20% of your income for retirement. The old rule of thumb was to save 10% of your gross income for retirement. That seems to be a little low, especially for younger workers who may not have a pension to fill in the gaps. Aim a little higher than that, especially later in your career, if you want to be ready for retirement.

18. Subtract your age from 100; the resulting number is the percentage of your portfolio you should invest in stocks. If you’re 50, for instance, you should invest about 50% of your overall portfolio in stocks. This is another rule of thumb that can vary greatly. You could bump this rate up if you’re more risk-tolerant or planning to work and invest longer. Consider a more conservative style if you’re less risk-tolerant or want to retire early.

19. Always take the employer match on your retirement account. If your employer offers any match for retirement investments, save at least enough to get that match.

20. Calculate your current pre-retirement expenses plus 10% to plan your annual retirement needs. Many rules of thumb say to aim to live on a certain percentage of your current income in retirement. But this may not make sense if you save a significant portion of your income and still live well. Instead, use your expenses to calculate your annual retirement needs.

21. Aim to save 1X your annual salary by 35, 2X by 40, 3X by 45, and so on. This is a rule to help you see if you’re saving enough for retirement. If you’re far off these numbers at various ages, consider cutting your spending to boost savings.

College

22. Save for retirement first and your kids’ college expenses second. This is counterintuitive for parents who spend their lives putting their kids first. But remember: your child can borrow, if need be, for college. You cannot do the same for retirement.

23. Limit your student loan borrowing to your first year’s expected annual salary. Research typical first-year salaries in your field to keep your student loan borrowing in check. Keep your student loans’ total balance to this amount or, preferably, much less.

Mortgages

24. Put at least 20% down when you buy a home. This is a good idea for two reasons. First, it limits the total amount you borrow on your home, leading to significant savings over time. Second, it means you don’t have the added expense of private mortgage insurance (PMI). Third, you are much less likely to go underwater on your home if the market has another major downturn.

25. Buy a home that costs no more than 2.5 to 3 times your gross annual income. Again, this is a good way to limit your spending on your home, keeping things within an affordable range. However, it doesn’t consider interest rates, taxes, and insurance. If interest rates are high or your property taxes will be enormous, consider limiting yourself to just 2X your annual income.

26. Consider refinancing your home if interest rates drop by 1% or more. The important piece of this rule of thumb is “consider.” Refinancing is always a case-by-case issue, depending on how long you plan to own the home, your current rate, and how much the refinance will cost. But if rates drop by 1% or more, you should at least take time to do the math on a refinance.

27. Fix your mortgage rate for as long as you plan to live in your home. Fixed-rate mortgages are the norm for many reasons. But if you’re considering a variable-rate mortgage, ensure the rate will be fixed for at least as long as you plan to live in the home. Variable rates can make sense if you plan to move on in a few years. But even then, they can be dangerous, so just be careful.

28. Don’t prepay a low-rate, deductible mortgage. Deciding whether or not to prepay on your mortgage can be tough. But, generally, if you’re already getting a good rate, you should use that money for other important financial goals. This is especially true if you’re talking about your primary residence, where the mortgage interest will be deductible on your federal income taxes.

29. Your mortgage should be the last debt you pay off. Many homeowners prioritize paying off their mortgages on the path to debt freedom, but that makes little sense if you have other debts. Car loans, student loans, and especially credit cards typically carry higher interest rates than mortgages, so paying them off should be a priority. In addition, paying off non-mortgage debt first will provide the needed budget boost to take on paying off your mortgage eventually.

Speed is another consideration. While you may take the next 15 years to pay off your mortgage early, you could have your car paid off in two or three years, providing a much more immediate cash flow benefit.

Cars

30. Plan to buy used or new and drive the car for at least ten years. Generally, buying new isn’t the better financial option. But if you can drive the car for ten years or more, buying a new one can sometimes be a decent financial investment.

31. Use the 20/4/10 rule if you must finance a vehicle. Your best bet is to pay cash for any vehicle. But if you must borrow, put at least 20% down. Don’t finance the car for more than four years, and don’t put more than 10% of your income towards payments. This may limit your means to buy a nice vehicle, but it’ll keep you from making stupid decisions at the car lot.

32. To estimate the actual cost of owning a car over five years, double the price tag and divide that by 60. So, buying a $10,000 car costs about $333 per month for all its expenses, including plating and insurance.

33. Don’t spend more than 20% of your take-home pay on all costs for all the vehicles you own. This includes costs like insurance, plates, and maintenance, too. Again, this can seem limiting if you’re setting your sights on an expensive vehicle. However, limiting your total vehicle costs to 20% or less of your take-home pay will keep you from spending too much on a depreciating asset.

Insurance

34. Have 56 times your gross annual salary in life insurance coverage. If you need life insurance, the term is usually (though not always) the best bet. When deciding how much term coverage to get, multiply your annual salary by five or six, and opt for at least that much total coverage. Consider getting even more if you have special life insurance needs, like multiple children or high debt. If you don’t bring in an income but provide essential services to your family

35. Use insurance for catastrophic expenses, not basic ones. As with high-deductible healthcare plans, this is how the insurance world generally works. Whether it’s car or homeowners insurance, you shouldn’t rely on your insurance to pay for expenses you can handle out of pocket. This will only increase your deductible and your overall costs over time. Instead, consider insurance a last-ditch backup rather than a financing plan for general life costs.

The post 35 of the Best Money Rules of Thumb You Need to Know appeared first on Doughroller.

Unfortunately, we’re still not accustomed to YNAB’s month-ahead spending goal. That means our checking account ebbs later in the month, and we must be more careful. This is especially true because some bills get paid with my freelancing income, which can happen at unpredictable times. We’ve struggled to track our cash flow.

This has often caused us some real problems for the past several years. For example, “We don’t get paid until Friday, and we have $11 to spend the entire week”-these are some problems. If you’ve ever been there, I have a possible solution: Google Calendar.

After messing with several potential solutions, we finally found one that worked well for us. If cash flow is your major budgeting issue, here’s a step-by-step guide for using Google Calendar to track your cash flow easily.

1. Set up a calendar just for your budget

If you don’t already have one, you must sign up for a Google account. As soon as you have your Gmail address, you’ll have access to Google’s calendars. To find it, go to calendar.google.com.

Even if you’ve never used Google Calendar, you’ll have one that automatically populates based on your email address. This is your default calendar. It shows up on the left-hand side of your calendar display.

To create a new calendar for your budget, click the arrow to the right of “My Calendars” and click “Create new calendar.” Fill in the blanks with a name for your calendar, time zone, etc. You don’t have to fill in all the blanks if you don’t want to.

Since this calendar will include some personal financial information, you probably don’t want to make it public. But if you’re on a shared budget, you may want to share it with your spouse or partner. We’ll talk about that in the next step.

2. Share with your spouse, if necessary

My husband has access to this calendar, and I would suggest making it available to your spouse or partner if you’re on a shared income. To share a calendar with someone else, go to the “Share with specific people” section at the bottom of the calendar creation menu.

Type in your spouse’s email address and decide what permission settings to use. If you want your spouse to be able to add to the calendar or change event colors (which will be important later on), choose “Make changes to events.” Then click “Add person.” Once this goes through, click “Create calendar” to begin using your calendar.

This will shoot you back to the main calendar screen, and your calendar will default to show up.

Of course, you must enter some events to make anything appear on the calendar interface. Here’s how to do that.

Additional Resource – The Best Budget Apps for Couples

3. Enter your steady paychecks on repeat

Let’s start with the positive. Begin by entering your paychecks as a repeating event, depending on how you get paid. I’ll show you some examples here that are similar to how my husband’s and my calendar work (with hypothetical numbers, of course!).

First, click on the date of your next paycheck. Let’s say I get paid once a month, on the 15th. I’ll double-click into the 15th of the month, which will open a new event to edit. I title my budget calendar events with the name of the income or bill and the amount.

You may come up with a different naming pattern. But whatever you do, stick to it so it doesn’t become unnecessarily confusing.

I typically save budget events as all-day events because they appear better on the calendar interface. And since there’s probably no particular time associated with budget due dates, you don’t need to worry about assigning them an hour deadline.

Next, you’ll want to set up the event as repeating, assuming you get paid regularly. To do this, check the box next to “Repeat.” Then, set up your repeating parameters. In this case, we say I get paid monthly on the 15th. Just click “Done” when your parameters are correct. Then, click “Save.”

In our imaginary calendar, we will follow these steps to include an every-other-Friday paycheck for my husband. For an every-other-week paycheck, your repeat parameters will look like the following:

As you can see, this parameter automatically makes the event appear on the calendar multiple times a month.

Now that you’ve entered your paychecks, I’ll give some tips below for entering variable income or paychecks that aren’t always the same.

4. Enter your bills on repeat

Now, let’s get to the yucky stuff: bills. This is the main purpose of my budget calendar, so I don’t include variable budget items like groceries or gas here. If you wanted to, you could, especially if you operate on a weekly or bi-weekly budget for items like these.

Create your first bill on its recurring due date just like you created your paycheck events. When I enter bills, I name them in one of two ways. I have some that are auto-debited from my account.

Then there are bills that I have to do something to pay, either by paying online, writing a check, or paying over the phone.

Note that in both styles, the dollar amount is negative. Of course, it’s obvious from the DUE and AUTO indicators that money is going out rather than coming in. But this feels more accurate to me.

As you enter these bills, ensure you correct the repeat dates. I will fill out my calendar with a few bills so you can get a feel for what this all looks like. Here’s a relatively filled-out calendar:

5. Use color-coding for at-a-glance understanding

As you can see from my sample calendar, it’s hard to tell what’s what because they are all the same color. (As a note, your calendar’s default color may differ.) Also, I’m a huge fan of color coding, so I like to do this with my calendar. It’s really easy.

First, open a paycheck event and then switch its color to green. (You can use any color you prefer, but green feels intuitive to me.)

When you click “Save,” the calendar will ask you if you want to edit all the recurring events or just this one. Click “All Events.” This will change all those paycheck events to green.

This will change all those paycheck events to green. Now, you can color-code your other events as you like. In my calendar, DUE events are red, AUTO events are yellow, and all income events are green.

Again, color code in whatever way works for you. Remember that if you aim to code all the events in a series as you set up your calendar, you’ll need to apply color coding to all events in that series.

Additional Reading – The Best Budget Apps

6. Use your calendar to track what’s been paid

You may stop here and use this as an at-a-glance way to track due dates. I use color coding to track what payments have been made or at least scheduled. I’ll often schedule payments ahead of their due date, and I want to see when I’ve done that so that I don’t accidentally double-pay.

To do this, I’ll set an event color to gray each time I schedule a payment or when an auto payment hits my bank account. Changing the color is the same. Just click on the event and select the color you want to use.

However, you should apply this new color to only that event rather than all subsequent events. Otherwise, it will look like you already paid your electric bill months in advance.

Just click the “Only this event” button when you save with your new color.

7. Check in on your calendar weekly

I habitually check in on this Google Calendar at least once a week, and sometimes more, depending on the circumstances. The huge advantage is that I can see which bills need to come out of which paychecks and schedule bills to be paid ahead of time when that’s an option.

Like all budgeting tools, this one is worthless if you don’t regularly use it. So, if you decide to use this option, get into the swing of checking in on your calendar frequently.

A Few Important Points About Tracking Your Cash with Google Calendar

I promised I’d discuss tips for handling variable income, and I have a few other items of note you should also consider.

Variable Income

What if you don’t know when your paychecks will hit? Or do you know when they’ll hit but not how much you’ll get paid?

In the first case, I’d habitually track bills and put in paychecks as soon as I get them. At least you can see which bills are coming up when that paycheck finally does come in.

The second case applies to people who work for commissions and such. In this case, record the date of your paycheck in this slot without an amount. Then, you’ll at least remember that the check is coming, and you may be able to gauge approximately how much it’ll be as the date gets closer. If you have a base pay, record your paycheck income as your minimum base pay so you’ll know at least how much you’ll make for that check.

These aren’t perfect solutions, but they can be a start as you figure out how to customize Google Calendar for your situation.

Personal Information

Some of you may balk at storing personal financial information on a Google platform. And you’re not entirely wrong. While Google is great, it may not be the most secure option globally.

However, I don’t have a huge problem with people knowing how much my bills and income are. You cannot do much with this information, especially since I round up to the nearest dollar and don’t even use the exact amount.

I wouldn’t, however, recommend storing any bank account or even customer account information in your budget calendar. Keep that somewhere else that’s much more secure, or you risk becoming a victim of identity theft or having your accounts hacked.

Notes

That said, storing additional information in your budget calendar could be helpful. For instance, I have to make our car payments over the phone each month, and I have the darndest time keeping track of the number I’m supposed to call.

So, I added that to the description note on our car payment event in the budget calendar. As with color changes, you can apply descriptions to just one or all the following events. This could be a helpful place to record websites and phone numbers used to make your payments. Just avoid storing personal information here, such as account numbers.

Ending Payments

What if you know you only have five months’ car payments left? In this case, when you set up a recurring event, you can set it to end after a certain number of recurrences. So your car payment would drop off your calendar after five months of recurrences.

If you use this technique, I’d recommend toggling through your calendar to find the last payment you’ll make. Make a note in that event’s title to check that your installment loan is fully paid off. Your last payment amount may be slightly below or even above what you’d normally pay, so you want to be sure it’s paid off before it drops off your calendar and out of your mind!

Final Thought on How to Track Your Cash Flow with Google Calendar

Harnessing the power of Google Calendar to track your cash flows offers a streamlined, accessible approach to managing your finances. By setting up this system, you can gain real-time insights into your spending patterns, ensure timely bill payments, and plan for future financial goals—all within a platform many of us use daily.

Whether you’re looking to tighten your budget, save for a big purchase, or keep a closer eye on your expenses, Google Calendar provides a flexible, free, and innovative tool to stay financially organized. Embrace this method, and you’ll find that a well-managed budget is just a few clicks away.

The post How to Use Google Calendar to Track Your Cash Flow in 7 Easy Steps appeared first on Doughroller.

Here’s how the 50/30/20 budget can improve your spending, savings, and financial stability.

What Is the 50/30/20 Budget?

The 50/30/20 budget gives every dollar in your bank account a purpose. This budgeting idea comes from the 2005 book All Your Worth: The Ultimate Lifetime Money Plan by Massachusetts Senator Elizabeth Warren and her daughter Amelia Warren Tyagi.

The 50/30/20 budget organizes your money into needs, wants, and savings.

Half of your paycheck, or 50%, goes toward non-negotiable needs. 30% goes to the fun stuff. And the remaining 20% goes toward savings, investing, and paying down debt.

Too often, budgeting guidance can be unrealistically restrictive and shames frivolous spending. Or some financial advice can lean too heavily on simple platitudes. For example, stop buying a $5 fancy coffee daily and put that amount in a savings account instead.

While this advice isn’t wrong, a more realistic approach may yield better results. A budget should include some indulgence and fun. The 50/30/20 budget leaves room for buying what you want while prioritizing saving and investing. So you won’t feel like you’re on a restrictive financial diet.

How the 50/30/20 Budget Works

Budgets are easily broken. But when you leave room for typical spending, you’re more likely to stick to the plan. 

The 50/30/20 Budget creates an organization template for your monthly income. You’ll know exactly where every dollar needs to go.

Budget 50% of Your Money for Needs

We might think we “need” modern amenities like updated smartphones, Wi-Fi, and a fresh haircut.

But needs will come down to what keeps you alive, employed, and out of jail. Needs can include:

• Groceries
• Utilities
• Mortgage
• Rent
• Car loan
• Gas money
• Car maintenance
• Work clothes
• Childcare costs
• Healthcare insurance
• Copayments
• Credit card minimum payments

If you work from home or are self-employed, having the latest smartphone and the fastest internet may fall under work necessities. In certain work-contingent situations, expenses that seem like “wants” can be classified as “needs.”

Budget 30% of Your Money for Wants

This “wants” section is the special feature of the 50/30/20 budget. It’s a built-in buffer. A significant 30% of your monthly budget goes to non-necessities. 

This extra expense may be a new outfit for the next holiday party or sushi when you don’t like cooking. It can also be for a spontaneous movie date or a Starbucks commute ritual. You can indulge without getting off track if you stick to your 30% limit.

Other “want” purchases might include:

• Vacations
• Tech accessories
• Donations
• Gifts
• Streaming services
• Plants
• Home Decor
• Gym/club memberships
• App subscriptions

Any expense that isn’t necessary for survival or paying off debt is likely a candidate for the “wants” category.

Budget 20% of Your Money for Savings

The smallest chunk of your money is set aside for savings. We’re generally using the term “savings” here. This money can also be used for retirement investing and paying off debts faster.

How you divide your savings budget is up to you. You can begin by building your emergency fund. Put three to six months’ monthly expenses in your emergency fund and keep them there.

Your excess savings can pay off any high-interest debt, like credit cards. Check out our list of best savings accounts for ideas on where to stash your emergency fund.

If you’re not already sending a portion of your paycheck to a retirement fund, consider getting a 401k or IRA. Then, you can send 10% to your emergency fund and 10% to your retirement account. You can also send a higher percentage to your savings to build your emergency fund faster. The choice is yours. 

Helpful 50/30/20 Budgeting Tools

Using a budgeting app increases the chances of sticking to it. Research shows that the instant feedback consumers receive from their budgeting apps helps them manage their financial goals. 

We’ll highlight some of the best budgeting apps below.

YNAB

YNAB, or You Need a Budget, can streamline your finances into an easy-to-follow budget. Even if you have multiple income streams spread out among different bank accounts. The app can support a 50/30/20 budget with its smart categorization feature to divide expenses into wants, needs, and savings categories. 

As the app learns your expenses and budgeting goals, it can automatically recognize and categorize your spending. You’ll receive a free trial of YNAB for 34 days to see if this is the budgeting platform for you. After the trial, a subscription costs $14.99 per month or $98.99 per year.

Read our YNAB Review

Tiller

For those who truly appreciate the unmatched orderliness of a spreadsheet, Tiller is the budgeting app for you. It offers a simple spreadsheet design. You can fully customize your budget and easily set up a 50/30/20 budget system. Use a community template if you don’t feel like tinkering with the spreadsheet. 

You can link all your financial accounts so your Tiller spreadsheet updates automatically and gives you feedback on your total financial picture. Tiller Money is free for 30 days, then $79 per year.

Read our Tiller Review

Simplifi

Backed by fintech giant Intuit, Simplifi connects all your bank, investment, and retirement accounts. Your dashboard is your control center, so you can quickly assess your finances and stay on your budget. Their customizable categories can be personalized to match a 50/30/20 budget setup. 

The app also offers helpful insights to highlight how small changes can help you realize financial goals in the future. Simplifi costs annually or per month.

Read our Simplifi Review

What if I Can’t Afford To Follow the 50/30/20 Budget?

The beauty of the 50/30/20 budget is that it’s percentage-based instead of relying on static numbers. This allows people in any income bracket to start a budget plan.

However, you may find that you can’t follow a 50/30/20 budget if most of your income goes toward absolute necessities. 

To calculate if the 50/30/20 budget works for your financial situation, comb through your last full bank statement. Add up the total amount of deposits or your standard monthly income. 

Then, find the total expenses that are absolute necessities. Figure the percentage you spend on necessities by dividing your necessary expenses by your monthly income. Multiply this number by 100.

For example, if you make $5,000 per month, and your needs total $3,000:

3,000/5,000 = 0.6

0.6×100 = 60% of your income goes toward the “needs” category.

How to Lower Your Needs Percentage

Don’t give up if your necessary expenses total more than 50%. But you will need to get creative. Two ways to get your absolute necessary expense percentage down are to:

• Find a way to increase your income through a side hustle or a new job.
• Find cheaper options for your absolute necessities. This might include buying generic groceries instead of name brands, trading in your vehicle for a vehicle with a lower monthly payment, or refinancing your mortgage for a lower APR.

Using a budgeting app can also help you evaluate your spending habits in the “wants” category. Then, you can make more informed spending choices from now on.

50/30/20 Budget Alternatives

If the 50/30/20 setup is unrealistic for your budget right now, you could view it as an attainable goal while you increase your income or decrease your necessary expenses.

In the meantime, you can still take charge of your budget with one of the following proportional budget systems.

80/20 Budget

The 80/20 budget is the simplest way to practice proportional budgeting. It removes the need to track your expenses throughout the month. You also won’t need to put any thought into which purchases are necessities and which are wanted. The 80/20 budget breaks down like this:

• 80% of your monthly income goes toward all expenses, necessary and superfluous
• 20% of income goes into savings

If you immediately move 20% of your paycheck into savings when you get paid, you’ve done all the legwork this budgeting method requires. Of course, you should check your bank account often enough to make sure you don’t overdraw.

70/20/10 Budget

The 70/20/10 stands out from other percentage-based budget types for its aggressive approach to paying down debt. The 50/30/20 and 80/20 leave an open suggestion to pay down debt if you have room in the 20% savings section. But the 70/20/10 dedicates a separate category to it.

The 70/20/10 works the following way:

• 70% of income goes to living expenses and wants
• 20% of income goes to savings
• 10% of income goes to paying down debt

This is the ideal budget plan for people who are burdened by high-interest-rate revolving credit. Hacking away at debt every month puts you in a position to be debt-free. Once that happens, you might transition to the 80/20 or 50/30/20 budget.

Frequently Asked Questions (FAQ)

Final Thoughts

When left unsupervised, dollars tend to dwindle without notice. But a budget gives your money a mission to improve your financial standing.

The 50/30/20 budget is one money management route to get there. With the help of budgeting apps, you can easily start tracking and organizing your money as soon as your next paycheck drops.

With this proportional budget plan, you can secure your financial future without sacrificing fun spending. The bottom line is that the 50/30/20 budget has some advantages as a starting point, but like most financial rules of thumb, it can also lead you astray.

The post Is the 50/30/20 Budget a Good Rule of Thumb? appeared first on Doughroller.

Mixing relationships and money can have disastrous consequences, ranging from never seeing your $20 again to burning relationships. And it goes both ways, whether you’re the one borrowing money or the one lending it.

As someone who has borrowed money from family members and lent to friends, I’ve learned that setting good boundaries is important. Otherwise, you risk money ruining your relationships, which is never good. So before you open your purse strings or hold out your hand, check out our rules for borrowing from and lending to friends and family members.

Rules for Borrowing Money from Friends

Let’s start on the receiving end. Sometimes, borrowing from friends or family can seem more viable than taking out a personal loan. After all, they’re likely to lend to you for little or no interest. And they know you personally instead of just looking at your credit score or other fairly impersonal data.

You might be in this situation when you’re just starting, and managing basic finances is tough. Or maybe an emergency arises, and you aren’t sure where else to turn. Borrowing from family or friends, in this case, isn’t always a bad decision. But you need to be sure you go about it properly. Here’s how:

1. Look into other options first

Before you borrow from a friend or family member, consider other options. These could include tracking your spending and getting on a budget. It could mean starting a side gig to earn more or asking for a raise. You could also try negotiating for better rates with your current creditors. You might even consider getting a personal loan through a traditional lender.

There are new players in the personal loans field that, via advanced algorithms, would match your loan demands to the best personal loan quotes with a possibly surprising APR rate.

Earnin

The Earnin app allows users to access wages they’ve already earned before payday, offering up to $100 per day without interest or mandatory fees. It features instant money transfers to bank accounts, credit score tracking at no cost, and tools for budgeting like Balance Shield to prevent overdrafts and Tip Yourself for savings goals.

The app operates on optional tips rather than fees, promoting a community-driven approach to financial well-being.

Read our Earnin Review

This isn’t to say that you should take out a loan with a 17% APR if your parents are willing to lend to you at a much lower rate. But you want to be sure you’re financially prepared to meet your obligations, no matter where you borrow from.

2. Be sure they can afford the loan

This is a time to be very frank about your and your lender’s finances. It may not seem like your business. But if you’re close to your lender–especially someone like a parent or grandparent who feels responsible for you–they could lend when they can’t afford it.

Of course, you don’t have to ask for a detailed financial statement—that is none of your business. But don’t ask to borrow money if your friend or family member struggles with their finances.

3. Pay at least some interest

This piece of advice may differ depending on the relationship in question. My parents would lend me money if I needed it (mostly through no fault of my own), but they wouldn’t let me pay them interest. It just didn’t occur to them.

However, if you’ll pay the loan back over several months or years, you should offer to pay enough interest to compensate for inflation. A short-term loan may not require this step unless the lender asks. But for a longer-term loan, be prepared to pay at least 2%—4% in interest.

4. Don’t negotiate for more

Depending on your situation, asking for what you need is okay. If you really could use a $10,000 loan, ask. But if your friend can only spare $2,000, take the offer graciously and don’t negotiate. Negotiating is what you do with banks and people with whom you have purely financial transactions. It’s not what you do when you borrow from friends and family.

If you’ve examined your other options and found them lacking, you’re not in a position to negotiate. Consider the loan a favor and be gracious about accepting it. It progresses toward your goal even if it doesn’t meet your total needs.

5. Set up some paperwork

Never borrow money from a friend or family member with a spit handshake. Written documentation helps keep you both accountable for who owes what and when. Your lender needs to know when to expect payment and when they’ll be fully paid. You’ll need to agree to these terms and be sure to stick to them.

One of the best things about borrowing from people who care about you is that you can often set terms that work well for you. Maybe you pay every other week on payday or once a month if you’re paid monthly. Be upfront about what you can afford, but ensure the lender gets what they need.

As a side note, you can draw up formal legal paperwork if the lender prefers. But that’s not necessarily required. If the lender wants you to sign legal paperwork for the loan, do it.

6. Make payments on time

If you’ve borrowed from a friend or the Bank of Mom and Dad, it’s tempting to be lazy about making payments on time. Don’t be. In this scenario, your credit score may not be on the line since they won’t likely report your loan to the credit bureaus. But something far more important is on the line: your relationship.

Remember to make this payment on time. Schedule automatic transfers using your bank’s online check feature. Set a reminder on your Google calendar and then make payments when they’re due using PayPal’s friends and family transfer feature. Whatever you do, make sure that those payments get made on time.

7. Try to pay it off early

This isn’t entirely necessary if you’re sticking to the payment plan. But it can be nice. It can also help remove the weight of financial transactions from a relationship. Getting money back sooner rather than later could be financially helpful for your friend or family member. And if nothing else, it buys you back some credibility you may have lost if you got yourself into a financial scrape in the first place.

Even if you only pay the loan off a month or two early, that can still be a nice surprise and boost the relationship.

8. Work to maintain the relationship

Finally, don’t let this relationship become primarily about financial transactions. Keep maintaining the relationship in the ways that you would have if there were no loans at all. This might mean regular dinners or just holidays together.

There’s a balance here. It can be tempting to pull out of a relationship if you’re embarrassed that you had to ask for money in the first place. But you could also be tempted to ramp up the relationship to “make up” for borrowing the money. Either option could lead to some awkward moments. It’s best to keep on as you were before in the same rhythms–just with that extra monthly or biweekly transaction thrown into the mix.

Rules for Lending Money to Friends and Family

As you might guess, our rules for lending to friends and family are the flip side of the borrowing rules. Lending isn’t always a bad option. It can be a good way to use the money you can spare. And it can be a real help to someone you care about. But before you write a check, consider these rules:

1. Only lend what you can afford to lose

This is the most important rule here. If you’re lending money, be sure you can afford to lose it. Think of lending as giving a gift. If you’re paid back on time, it’ll be a surprise gift in the other direction. Getting repaid is just a bonus.

Looking at the loan this way may seem strange. After all, you wouldn’t likely hand someone a large check for their birthday. However, holding onto this loan loosely can help you ride potentially emotional waves if the person walks off without repaying you or continues to struggle financially.

2. Count the potential relationship costs

With this said, there are potential relationship costs even if you hold the loan loosely. Many strong relationships sour over money. It’s easier to replace the money in your bank account than to replace a lifelong friend or close relative. So be sure that the loan is necessary for your friend or family member and that the potential relationship is worth it for you.

Following the other rules here may make you less likely to lose the relationship over the loan. But it could still happen, so be careful.

3. Talk to the borrower about their other options

Be sure the borrower has vetted other options. This is only possible if you dig into their finances, which you have a right to do as a potential lender. This doesn’t mean you need to interrogate them about every expense. But you should have a good idea of their income and outgoing expenses, whether they’re sticking to a budget, and if they’ve looked at other options.

4. See if there’s another way to help

Sometimes, digging into other options can help you see if there’s another way you can help outside of lending money. For instance, you might find that all the person needs is some budgeting guidance to be financially successful. Or maybe he’s looking for a job, and you can give him some work or help him make connections in your field. There are often alternatives to writing a check, so be sure you explore those in a non-threatening or controlling way.

5. Set a fair interest rate

It’s good for borrowers to have some skin in the game to repay on a reasonable schedule. It also helps you get some interest on the loan you’re making. Don’t charge exorbitant interest, of course. After all, the primary goal here is to help a friend, not fund your retirement. But look at inflation and set a rate at least a little higher than that.

6. Create a payment schedule

This is a good place to sit down with your borrower’s budget. Figure out what they can afford to repay monthly or per paycheck. Then, set that payment schedule and get it in writing. If you want, you can create a formal legal document. You can also use a spreadsheet to keep track of payments and amortization. Agree on the day you’ll be paid, and then expect payment on that day until the loan is paid off.

7. Treat it like a business transaction

Once you’ve loaned the money, you should treat it like a true personal loan. The bank you borrow from doesn’t give you the third degree about how you spend the money, provided you make payments on time. You shouldn’t either. If you think you’ll take offense to the borrower’s financial decisions after you make the loan, don’t make the loan at all. You should be fairly confident the money will be used wisely, or you shouldn’t provide it.

8. Don’t lose sight of the relationship

As with being the borrower, when you’re the lender, focus on the existing relationship. Don’t use a loan to wheedle your way further into the borrower’s life than you were before. And don’t assume that your situation gives you unlimited lifetime access to the borrower’s finances. The borrowing/lending relationship can be handled separately if they’re late on payments. But the rest of your relationship should continue, as much as possible, as it was before.

Lending to and borrowing from friends and family members can be tricky. And it really shouldn’t be your first or preferred option. But it can be a good stopgap if you’re in a jam or a way to help someone if you have money to spare. Just follow these rules to keep things as smooth as possible, whether you’re the lender or the borrower.

Final Thought on Borrowing Money from Friends and Family

Borrowing money from friends and family can offer a flexible and interest-free alternative to traditional loans, potentially strengthening bonds through mutual support. However, it’s crucial to approach such arrangements with clear communication, set expectations, and formal agreements to safeguard relationships.

Weighing the potential risks and benefits carefully is essential, as the impact extends beyond finances into personal connections and emotional well-being. Ultimately, the decision to borrow money from loved ones should be made with thorough consideration and respect for the delicate balance between financial need and relational harmony.

The post 8 Simple Rules for Borrowing Money From Friends and Family appeared first on Doughroller.

Whether you’re starting from scratch, repairing damaged credit, or looking to take your credit from good to excellent, here are 12 ways to improve your credit score.

12 Easy Ways to Improve Your Credit Score

1. Get your FICO Credit Score

The first step is to know your credit score. The saying goes that you “can’t improve what you can’t measure.” And that’s never more true than with your finances.

The good news is that you can get your FICO credit score for free. You do have to sign up for a 30-day trial, but you can easily cancel the service before the trial ends if you want.

Don’t want to use a service that might require payment? That’s doable. Services like Credit Karma, and Credit Sesame give you a free credit score estimate. (Just keep in mind that these are estimates, even if they may be fairly accurate.)

Another option is to check with your current credit card provider. Many of today’s credit card companies provide a free copy of your credit history and credit score every month.

The bottom line here is that you should have some idea of where you stand with your credit score. With all the free options available, there’s no reason not to!

2. Get a free copy of your credit report

Step two is to get a free copy of your credit report. By federal law, the three major credit reporting agencies must provide each consumer with a free copy of their credit report every year. This is the starting point for improving your score. And remember, you can get your free copy at AnnualCreditReport.com.

You can swing this in one of two ways. One option is to get all three reports at the same time. Then you can compare them to be sure they all have accurate information. (See steps three and four!) Or you can pull one report every four months. This lets you keep an eye on your credit history without paying through the nose for frequent reports.

Either option is fine. Again, it’s most important that you have some idea of what information appears in your credit history.

3. Review your credit report for accounts that aren’t yours

The first thing to do when reviewing your credit report is to make sure the identifying information about you is accurate and that the listed accounts belong to you.

If you see an account you don’t recognize, try to get to the bottom of it. Start by reviewing your records of outstanding debts and accounts. Sometimes creditors have a different official name than the one they present to the public. So an account you don’t recognize could be one you opened but just don’t recognize immediately.

If that’s not the case, though, it could be that you’ve fallen prey to identity theft. In this case, you’ll need to go through the steps of reporting the theft. Simply having fraudulent accounts removed from your credit history could significantly boost your score.

4. Review your credit report for errors

Even if all of the reported accounts belong to you, they may contain errors. For example, a creditor may have reported a delinquent payment that was paid on time or repaid. If you paid a creditor in full after some time of missed payments, it’s not unusual for the creditor to have failed to report your payment to the credit bureaus.

Or you may show outstanding collections accounts that are paid off. Collections accounts on your credit history aren’t good, either way. But paid-off accounts are much better than those with an outstanding balance.

You may also find negative items in your report that should have been removed due to the passage of time. Some negative items are supposed to drop off your credit report after a certain number of years, automatically. Sometimes, though, the bureaus overlook this on individual credit reports until someone brings it to their attention. It pays to be vigilant in this situation.

Here are a few of the common items that should fall off on their own:

• Old bankruptcies must be removed from your credit report after ten years.
• Lawsuits and judgments must be removed after seven years, even if you haven’t fulfilled the court order.
• Paid tax liens remain for seven years, and unpaid liens remain for fifteen.
• If you are divorced and your spouse incurred debt when you weren’t married–either before you were married or after your divorce–it should not appear on your report.

If any of the above situations apply to you, and the period for which the items need to remain on the report has passed, contact the bureau as soon as possible. They will have the negative items removed.

If you notice a mistake, start a paper trail. You might need proof of your contact with the creditor or credit agency to get the situation resolved quickly.

5. Review your inquiries for errors

When you apply for most credit, the creditor will pull your credit report as part of its decision on whether to extend credit and on what terms. These inquiries are one factor in determining your credit score.

The theory goes that if you have a lot of recent inquiries to your credit report, you may be applying for credit to address a financial crisis. As a result, inquiries will lower your credit score. What you want to make sure is that you authorized each of the inquiries that you find in your credit report. If inquiries are showing up when you didn’t apply for credit, contact the credit reporting bureau to report the mistake.

Related: Visit CreditKarma to see your free credit score.

6. Dispute any errors you find

Having carefully reviewed your credit report, the next step is to dispute any errors you find. Having successfully disputed errors in the past, I suggest taking two approaches.

First, contact the creditor directly to dispute the error. Particularly if you still have an ongoing relationship with the creditor, they generally are willing to look into the issue. Second, dispute the error directly with the credit reporting agency. By law, they are required to investigate any errors you bring to their attention and respond to you within 30 days.

Filing a dispute with a credit bureau is much easier than it may seem, and each of the three major credit reporting agencies has a section of their website (Experian | TransUnion | Equifax) that will help you dispute an error online.

7. Pay your bills on time

Having examined your credit report closely and disputed any errors, it’s now time to turn our attention to money management. The first rule of credit score health is to pay your bills on time.

Even one late payment can significantly lower your credit score. And the higher your score is, the more impact a late payment will have. Note that most creditors will not report a late payment until it’s 30 days past due. Still, being even one day late can result in penalty fees, increased interest rates, and even closed accounts.

The best way to avoid late payments is to automate your finances. Sign up for automatic bill pay whenever you can. Or if you live with a variable income, try to get a month ahead on your payments. That way if income doesn’t hit your bank account at the right time, you have built-in extra time to pay your bills.

8. Pay down your debt

This may fall into the “easier said than done” category. But it will help improve your credit score. Your overall amount of debt plays into your FICO score. And revolving debt is particularly important. Carrying high balances on credit cards relative to your available credit will tank your score quickly.

Paying down revolving debt, like credit card debt or even a HELOC, may be the quickest way to improve your credit score. And since paying off debt is also a way to get control of your finances, it’s generally an excellent strategy.

9. Do NOT close revolving accounts

It may seem counterintuitive, but closing credit card accounts, lines of credit, and other revolving debt can lower your credit score. One of the main factors in your score, mentioned above, is your debt-to-limit ratio. This is how much credit you’re using versus how much credit you have available.

Closing a credit card will lower your available credit. This will increase your credit utilization ratio, even if you don’t go into any more debt. Plus, if you close an older account, it may lower the average age of your accounts. This is a less important piece of your credit score, but it’s still a part of the equation.

If you’re struggling with overspending, try another strategy. Consider cutting up your cards and unlinking them from all of your online accounts. Or use only one card with a low limit for your everyday grocery and gas shopping. Then, pay it off as soon as you use it. This keeps your cards active but lets you avoid going into more long-term credit card debt.

Read more: How to Cancel a Credit Card Without Hurting Your Credit Score

10. Don’t max out a credit card or line of credit

Another factor in the credit score formula is whether you use most or all of the available credit on any given account. The theory is that if you max out an account, it may reflect some financial difficulties that could increase your risk of default. And this is true even if you pay off the account in full every month.

Even if you pay off a card at the end of every billing period, that may not reflect on your credit report. Say your American Express account gets reported to Experian on the 15th of every month. You’ve used your card every day for the first part of the month, so you’re carrying a hefty balance. You pay off the balance on the 28th–two days before that month’s bill is even due.

But, still, your high balance was reported to Experian on the 15th. Not good.

The best policy here is to never charge more than 30 percent of a card’s limit on any individual card. And also don’t use more than 30 percent of your total credit limit at any given time.

Sometimes it makes sense to make a large purchase on your credit card. For instance, you might book a $5,000 vacation cruise on your credit card to get automatic travel insurance and other perks. That’s great. Just pay it off as soon as the transaction is processed to avoid having that large balance show up on your credit report.

11. Apply for new credit only if you must

As noted earlier, inquiries to your credit report will lower your score. Every time you apply for credit, the creditor in question looks at your credit score. The credit bureaus record this inquiry, and it dings your score. So to avoid these inquiries, apply for new credit only if you must.

One thing to keep in mind is rate shopping. The credit agencies understand that smart consumers shop around for credit in certain situations. For instance, if you’re getting a mortgage, you should check with multiple lenders to get the best terms.

So FICO gives consumers between 14 and 45 days to rate shop. Which end of the spectrum depends on which particular FICO score (there are more than 10!) a potential lender pulls. Your best bet is to do your rate shopping within two weeks. So set a deadline to put in all of your mortgage, car loan, or student loan applications within two weeks to avoid multiple hard pulls and a larger ding on your credit score.

12. Become an Authorized User on Another’s Credit Card

Our final strategy is to become an authorized user on a friend or family member’s credit card. This is a common approach used by parents who add their young adult children as authorized users on a credit card.

According to Experian, an “authorized user is a secondary account holder on a credit card. These users can make purchases, but aren’t ultimately responsible for payment, unlike a joint account holder or a cosigner would be.”

This practice can help those with limited or no credit history get a headstart on building credit. Experian describes this strategy as one that can “benefit you tremendously.” Of the five FICO factors, authorized users can benefit from the cardholder’s payment history and age of accounts.

At the same time, there is some risk involved. If the owner of the account doesn’t pay their card each month on time, it can tank your credit score. There’s also a significant risk if you pay a credit repair company to become an authorized user on a stranger’s account.

Called for-profit piggybacking, Experian warns that this practice is expensive, ethically and legally questionable, requires you to relinquish your personal information, and it may not end up improving your credit.

Why Your Credit Score It Matters

A credit score determines the types of interest rates we receive on loans. Because of this, a good credit score could save tens to hundreds of thousands of dollars throughout someone’s life. One estimate placed the value of a good credit score at $83,770!

Sure, it’s possible to live without ever using a financial service that requires a good credit score. A full cash-based life is not entirely out of the question. For most, though, it is simply unrealistic.

Because so many people need a good credit score to maintain the best financial condition, choices and actions that increase that credit score are incredibly important. Luckily, it’s not all that “hard” to do. It simply takes time and a concerted effort.

Let’s talk about a few of the first steps you should take when attempting to rebuild or improve your credit score.

Improving your credit score can have many positive effects on your finances. The simple steps described above will help you to improve your score, and you may seem results very quickly. Of course, if you are recovering from a financial meltdown, it will take time. But with patience and sound financial management, you should see your score start to improve.

Next Up: Best Apps to Boost Your Credit Score

The post 12 Simple Ways to Improve Your Credit Score Today appeared first on Doughroller.

But what about helping people avoid financial messes in the first place?

The best time to set individuals on the path to successful financial management is as young children. Even kids can learn basic concepts like saving for what they want and working hard to earn money. However, many people learn the specifics of sound financial management during high school and early adulthood. During these few years, most students manage some money, either allowance or income from a part-time job. They’re also on the verge of making some of the biggest financial choices of their lives: where to go to school, how to pay for school, and what career to choose.

Luckily, many things high school students should know by the time they graduate are very basic. Here are 14 lessons we suggest teaching your high school student before they leave the nest.

1. You’re Never Too Young To Save

Kids can and should have savings goals and even retirement accounts. One excellent personal finance book for kids teaches that youngsters as little as 5 or 6 years old should have to set savings goals. Then give them a small allowance, and watch as they learn to make tough choices. Should I buy the $1 pack of gum or save that money for my longer-term goal?

In high school, this can mean helping your teens set mid-term savings goals. They can save for their own prom dress, video game system, or car.

But high schoolers should also work towards longer-term savings. For instance, you can set up a Roth IRA for a minor. It’s a great way to show them how to save for the long term. And they don’t necessarily have to use that money for retirement. They could also choose to use it for a down payment on their first home.

Related: Best Money Apps for Kids, Teens and Young Adults

Book Review: Retire Before Mom and Dad

2. Compound Interest Is a Beautiful Thing

Explaining compound interest can help a savings-resistant teenager find the motivation to stash away cash. This calculator from Investor.gov can help you calculate how much interest that Roth IRA could earn if your child starts saving right away.

For instance, start with $1,000 and add $25 a month for 40 years. If the investment earns 8% and is compounded annually, your high school student could have nearly $100,000 in savings well before retirement age.

You can also make this apparent by offering compound interest from the Bank of Mom and Dad starting at an early age. Consider giving your child a nickel each week for every saved dollar of allowance. It quickly becomes apparent how fast this extra cash can add up–much more so than if they put it in a bank account earning .01% APR.

3. Compound Interest Might Bury You

On the flip side, be sure to talk about how compound interest could bury a young spender in debt. This simple credit card calculator helps illustrate how a small credit card debt can quickly snowball out of control.

The calculator shows that a $1,000 credit card charge with a 19% APR could take eight years to pay off and would cost $998 in interest. Just seeing these numbers on paper can help a student grasp the dangers of uncontrolled debt.

Again, you can demonstrate this issue with the Bank of Mom and Dad. If your teenager can’t wait to save money for the next hot thing, consider lending them the cash with a steep interest rate. That’s safer than them taking out a formal loan, but it can also teach them how fast compound interest can work against them.

4. You Don’t Have To go into Debt To Pay for College

Contrary to popular belief, student loans are not required for a college degree. Some colleges, like Davidson College in Charlotte, N.C., work with students to ensure they don’t go into debt for school. Others simply offer a great education at a fraction of the private school price.

Students have many options for college without debt: attend part-time, work while in school, choose a cheaper school, graduate early, and start at a community college.

This isn’t to say that going to school debt-free should be every student’s goal. Sometimes the student loan debt is worth it. If you launch into a high-paying field within four or five years of high school, student loan debt isn’t all bad. But students shouldn’t just take this debt as a fact of existence in college. And they should think carefully about every dollar they sign up to pay back.

5. College Degrees Are Not All Created Equal

Choosing the right school is important, but choosing the right degree maybe even more so. Sure, high school students should follow their interests and talents when choosing a career path. But they should also become familiar with the current and probable future job market.

Just having a college degree is no longer enough to guarantee a decent job. This means that students must do as much research as possible to ensure their degree will lead to excellent job opportunities.

One way to help students think through this is to have them do internships and job shadowing during high school. Sometimes, exposure to unknown fields can light a new passion they never knew existed.

6. Everyone Needs an Emergency Fund

As soon as a high school student leaves home, they need an emergency fund, preferably one that doesn’t involve a line of credit. A line of credit can make a decent emergency fund for those of us with more maturity and money management experience. But for teens and twenty-somethings just beginning to manage their money, having cash to fall back on is essential.

It’s a good idea to help your high school student save a small emergency fund well before graduating from high school. This money can be used for emergency car repairs and other issues that might crop up during college.

If you’re concerned that your young college student might spend out of this account for non-emergencies, consider a co-signed account that requires your input for spending. Or at least make it a joint account that you can monitor. Just having the accountability of someone else watching what you’re spending can make you think twice before swiping that debit card.

7. A Car Isn’t a Good Investment

Chances are that buying a car will be the first major financial decision a high school student makes. And most high school students drool over high-end SUVs or fancy muscle cars.

But cars are (quickly) depreciating assets. Cars are not a good investment. High school students should strive to pay cash for cars, even if that means driving around a beater.

If you haven’t already had the conversation about the problem with paying interest, car buying time is the time to do it. Some students may truly need a car to enable them to maintain a job or get to after-school activities. And that’s fine. But taking out an interest-bearing loan for a car should be a last resort.

8. Keeping Up With the Joneses Could Wreck Your Life

It’s human nature to want what your neighbors have and to be like others. And wanting to have nice things isn’t all bad. But allowing what others have to drive our financial choices, particularly when those choices involve spending beyond our means, is a slippery slope.

Teenagers are developmentally primed to fit in with their peers, which is why they worry so much about what others think. So this lesson can be a difficult one to teach. But if a teenager can step back from the drive to keep up with the Joneses now, they will make much better financial choices in the future.

Again, you can make this an object lesson by letting your high schooler try to fit in. For instance, if you usually spend $250 on back-to-school clothes, hand it over to your teenager. Just make sure they understand that you won’t be there to bail them out. If they spend $125 of that $250 on a pair of expensive designer jeans that look cool, it’s up to them to make the remaining money stretch to fit all their back-to-school needs for the year. And if they end up having to dip into their own money or shop Goodwill to “keep up with the Joneses,” so be it.

9. Financial Institutions are There To Sell You Things

It’s easy for students–and the rest of us–to think that banks and lenders are our friends, especially when students are trying to finance a college education.

But the fact is that financial institutions exist to make money. And they make money by selling financial products. This doesn’t mean students should avoid dealing with financial institutions. It simply means they should be shrewd when doing so.

This is an especially important conversation to have before your student steps foot on a college campus. College orientations are rife with booths from various local banks and large credit card companies peddling their wares. Again, these wares aren’t necessarily bad. But students can easily sign up for way more credit than they have any business handling before college even starts.

10. Budgeting Doesn’t Have To Be a Drag

Most adults hate the word budget, and many teenagers have never even considered living on one. If they do think about it, they probably assume that living on a budget means never buying a pair of jeans, going to a movie, or spending any money in general.

But living on a budget isn’t about never spending money. It’s about taking control of your money to meet financial goals. Students who understand this and who start budgeting while they’re in high school will be set up for a life of financial happiness and success.

High school is the perfect time for teenagers to learn to budget. You can give them this power by handing over a lot of the money you would have spent on them. For instance, give them complete control over their lunch money. If they run out of money by Wednesday a few weeks in a row, they’ll quickly learn to budget their spending for the week, so they don’t have to go hungry or bring a PB&J from home.

Tip: FamZoo is a great app for older teens, especially those going off to college. It assigns a purpose to every single dollar your child earns and spends, creating incentives for them and helping track their savings progress.

11. Not All Debt Is Bad Debt

Two or three generations ago, people didn’t go into debt. Many of our great-grandparents probably paid cash for their homes. These days, living completely debt-free isn’t always possible or even wise.

High school students need to understand how to stay out of the most expensive forms of debt: long-term student loans, depreciating car loans, high-interest credit cards, etc. But they also need to understand when to use debt and how to manage it wisely.

One way to help them figure out this equation is to research where they want to live someday. They can look at current home values and mortgage rates and figure out what it would cost them to buy a home responsibly. Then talk about why mortgage debt isn’t always bad and even how they can eventually use credit cards to net some great financial rewards.

12. Credit Scores Are Important

Like I said above, living completely without debt is tough, if not impossible, today. People are rarely able to cover the cost of a home with absolutely no debt. So students should learn early on about their credit scores, including how to maintain one.

Again, you can help by giving them some exposure early on. As soon as your child takes out their first student loan, they’ll have a credit report and subsequent score. Talk about what a good score is and how to maintain excellent credit.

You can extend the lesson further by giving your kid access to a secured credit card. These require a deposit, so lack of payment doesn’t cause a hefty and immediate consequence. But this can help them build up credit over time. And keeping tabs on their score while they do this is a great way to motivate them to keep building credit for the future.

TIP: Experian Boost. It’s free and can see when you pay your utility and mobile phone bills. Every payment you make on time can boost your credit score.

13. Living Takes Money — A Lot of It

Most teenagers have no concept of how much it takes to cover the basic costs of living. Why should they? It’s not like they buy all your groceries, pay your mortgage, or cover insurance premiums.

The problem is that this lack of awareness can leave young adults with sticker shock when they get out on their own. You can help prepare your high school student for the real cost of life by letting him in on your family budget, having her shop for groceries, or requiring that he pay for his car insurance.

One good option here is to run an experiment with pretend money. Talk to your teenager about the life they want to lead someday. Research their potential income and cost of living where they’d like to live. Then give them a month’s salary in play money. Go through a typical budget, and have them fork over the money for basics like rent or a mortgage, groceries, student loan payments, and vehicle expenses. When they see what’s left, they’ll know how much it costs to be an adult.

14. Money Isn’t Everything

It’s easy for high school students to get caught up in dreams of giant homes, luxury cars, and tropical vacations when they land a high-paying job in the future. But remember to teach your student that money isn’t everything.

This comes into play when students choose a college major. Yes, high school students should choose a major that will help them become employable. But they shouldn’t choose a high-powered, high-paying job just because of the money. There’s a balance to be had, and you can teach this lesson best by demonstrating it in your own life.

Lead By Example

Remember, it’s important to set a good example for your kids. It’s much easier for a child to adopt healthy financial habits when they watch their mentors successfully practice them daily.

The post 14 Things Every High School Student Should Know About Money appeared first on Doughroller.

The decision to combine finances with your spouse can pave the way for a harmonious partnership, fostering transparency and shared goals, or it can lead to discord if not navigated wisely. Understanding the key factors in this process is essential for couples looking to build a stable and prosperous future together.

Couples must deliberate on several aspects before plunging into shared financial waters. From assessing individual financial habits and obligations to setting mutual goals, the process requires a level of openness and honesty that may not have been previously tested.

These considerations are not just about the logistics of merging bank accounts or splitting bills; they’re about aligning values, priorities, and visions for the future. In this context, we will explore nine important points couples should consider when combining their finances, ensuring that this critical step is taken with both eyes open and a shared understanding of the path forward.

Things to Consider When You Combine Finances With A Spouse

1. Know where you stand financially

Before you combine your finances with someone else, you must clearly understand your personal finance picture. How else can you have a meaningful conversation about your new financial life together if you don’t know what’s happening with your money? The amount of information your new partner will want largely depends on their personality.

Here are a few questions you might want to ask yourself before you have the money talk:

• Do you have credit card debt?
• Are your debts on one card or ten?
• How about student loans, auto loans, or a mortgage?
• Do you pay them on time?

What about savings and retirement planning? Are you sitting on a large stash and counting the days until financial independence? Are you drowning in consumer debt and wondering when you can file for bankruptcy (maybe even again)? Or is it something in between?

2. Why do you want to combine finances?

While this may seem like a silly question, many people don’t take the time to think this part through. They jump into how to combine finances without ever considering the why. Articulating the reasons you want to combine finances may not change your decision. But it can help you get in the right frame of mind and may ease the process.

Are you combining finances because you think you must? Maybe you’re doing it because that’s how your parents did it. Perhaps you’re considering it at your partner’s (or someone else’s) insistence.

3. Benefits and drawbacks

Maybe you’re not even sure you want to combine finances. There are certainly some pros and cons to both sides of the argument.

The biggest pro to the joint finances argument is probably convenience. Combining money generally means having at least one joint bank account. Having a joint account means that either or both of you have access to all the money in the account all the time.

This can make things like paying for groceries and other household expenses nice and easy. You no longer have to discuss who will pay or how to split the bill.

The potential benefit of having a joint account is that both partners have equal access to the money. The potential downside of having a joint account is that both partners have equal access to the money.

4. Are you both comfortable with each other’s financial situation?

Often, revealing the details of your financial life to another person can make you feel vulnerable. This can make the money conversations difficult at first.

Opening up your books to your partner and taking stock of each other’s finances is only part of the equation. Once you have laid all your cards on the table, you must decide whether you are comfortable with each other’s financial situations.

Maybe your partner still has six figures of student loan debt, and you have a million dollars in retirement accounts. Or perhaps you’re both debt-free but have no savings. What about your financial and life goals?

It is important to ensure you can get on board with each other’s plans. Life will look much different for two individuals working full-time and aiming to retire early than two people with summers off looking to take month-long adventures every year. Even if you don’t have the same goals, ensuring those plans are compatible is important.

It doesn’t matter what individual pieces you both bring to the table. Ultimately, you both need to be comfortable with the new picture that takes shape when you start to put those pieces together.

5. Are your money-handling styles compatible?

Maybe you’re worried because you are a saver and the other a spender. (This is much more common than you might think.) Maybe one of you is a Type A personality, and the other isn’t sure what day it is.

As the saying goes, personal finance is very personal. So, as you might expect, we all have our habits and techniques for handling money. In this regard, there are a lot of things to consider.

Do you both budget every penny? Maybe you check your account statements for a few minutes each month. Likely, it’s something in between.

Learn More: A Simple Approach to Budgeting

Having different money styles is normal and is generally not a cause for concern. The real sticking point will be whether your two styles can coexist in a way that works for both of you.

6. How will you divide up the jobs?

So, you’ve decided you are comfortable with each other’s financial pictures. You’ve identified each other’s money-handling styles and decided you will do the whole two become one thing. You’re done.

Nope. This is where the how comes in. All those big and little details still need to be figured out. Here’s a table that might help you figure out who is going to be responsible for what.

Which of you will write the checks and lick the stamps regarding bills? (Or, for those living in modern times, which of you will monitor the electronic bill payments?) How about keeping track of the daily personal and household expenses? Will you even track them? What if you both love creating and updating spreadsheets!?

Read About Setting Up a Cash Flow Calendar

7. Which accounts will you keep?

I call this the “Do we need two toasters problem.” When combining households, most people combine their belongings as well. It is not uncommon to end up in a situation where, after the dust settles, you have a lot of redundancy in the things you own. Do you keep your toaster or your partner’s toaster? Or do you throw them both out and buy a new toaster that you pick out together?

Combining finances often results in the same type of situation. Which means you also have a lot of choices to make. In short, how will you figure out which accounts to keep, which to close, and whether to open any new accounts?

Bank Accounts

As you might expect, there are a few schools of thought on combining bank accounts.

Ours: Some people feel that having only one joint checking and one joint savings account for the household is the only right way to combine finances. Some of the advantages of a system like this are simplicity and equality. If you have one account, there is no question about where the money goes when it comes into the household, and both partners have equal access to use that money.

Mine: Others prefer to go the opposite route and keep all bank accounts separate. In this system, household expenses are divvied up in some manner, leaving each partner responsible for their share of expenses and free to manage their accounts. In marriage situations, this is more commonly seen in second (or third) marriages or unions where one or both partners are older and more set in their ways financially.

Additional Resource: The Best Savings Accounts of 2024

This system is not without its drawbacks, however. Unlike the shared account system above, the separate nature of this system can create financial hurdles if one partner needs access to the other partner’s accounts, especially in times of job loss or serious health issues.

Yours, Mine, and Ours: Another way to tackle this issue is to use a hybrid system. Each partner has a separate account into which their income is deposited, and a household has a joint account with both partners named on the account. Each partner transfers money from their accounts into the household account, and all household expenses are paid from the joint account. This leaves each partner with an intact sense of autonomy and control over their finances while allowing for more convenient management of the day-to-day household expenses.

Credit Cards

Generally speaking, the same systems that can be used for bank accounts can also be used for credit cards. That being said, decisions regarding credit cards should be made with care as credit because opening and/or closing them can impact your credit.

If keeping your credit scores intact is one of your goals, consider both partners keeping all their cards open. That is because closing accounts can negatively impact your credit score, reducing your available credit (which can affect your utilization ratios) and your average age of accounts.

If you also want to have the simplicity of the one-account method, there are a few ways to handle that. The obvious solution might be to open up a new credit card account as joint cardholders. In that scenario, you would be legally responsible for all debt accumulated on the new card, which would appear on both partners’ credit reports.

The other way is to pick one card held by either partner (maybe the one with the best cashback, best airline mile earning potential, or lowest interest rate) and add the other partner as an authorized user on the card. Unlike a joint owner, typically, an authorized user has permission to spend on the card but is ultimately not responsible for paying it back.

Remember that in a marriage situation, state community property laws can affect this significantly. By adding an authorized user, you avoid the temporary hit to your credit that comes with an application for a new card, and you keep the number of accounts you have (and have to keep track of) from growing.

8. How will you track your finances?

Whether you keep one account or many, you will need some system to know where your money is and what it is doing. Thankfully, nearly all of the tools available for tracking your cash can be used for households just as well as one person and the we’ve highlighted two of the best budget apps for couples.

Rocket Money

Rocket Money is a comprehensive budgeting app with features that effectively manage personal and couple finances. It provides expense tracking, budgeting, bill negotiation, subscription management, and credit score monitoring.

With both free and premium plans, Rocket Money caters to a wide audience, claiming to have saved its customers over $1 billion. The app also integrates with Rocket Mortgage and Rocket Loans, offering unique benefits like a credit card with rewards towards home purchases or mortgage payments. Users highly rate it for its diverse services and ease of use.

• Monthly Cost – FREE for the basic version of $4-$12 per month for Premium

Read our Rocket Money Review

Empower

Empower is a financial management platform that offers a free Personal Dashboard and a Wealth Management service for more in-depth investment management. Serving nearly two million users, Empower provides extensive investment tools, even in its free version, such as asset aggregation, budgeting, and cash flow analysis.

The wealth management service, catered to clients with significant assets, offers personalized investment strategies and access to financial advisors.

• Monthly Cost – FREE

Read our Empower Review

9. Nothing is set in stone

Maybe you decide all these things upfront, or maybe they happen. Regardless, every financial partnership has some amount of delegating and co-managing. It’s just a matter of finding the balance.

That being said, it can be wise to reevaluate things occasionally to make sure you are both comfortable with how things are going. If not, you can use the power of teamwork to come up with a new plan!

Should You Combine Finances With Your Spouse?

Combining finances with a spouse is a highly personal decision that depends on each couple’s unique circumstances, values, and financial goals. While merging finances can foster a sense of unity and simplify money management, it is crucial to have open, honest discussions about each partner’s financial habits, goals, and expectations before making such a decision.

Establishing clear communication and mutual understanding can help mitigate potential conflicts. For some, maintaining separate finances or adopting a hybrid approach may offer the flexibility and autonomy they desire. Ultimately, whether or not to combine finances with a spouse should be a collaborative decision that supports the couple’s overall financial health and relationship harmony.

The post Should You Combine Finances with a Spouse? appeared first on Doughroller.

Even if you’re not currently on a bare bones budget, you may want to go ahead and write out what your essential budget would look like right now. If you lost your job, how much money would you have to pay each month to keep the lights on and food on the table?

Why do you want to know this figure even if you’re ripe with extra cash? For one thing, it helps you set your emergency fund target. Too often, people think an emergency fund should be three to six months of net income.

Though, in a true emergency, you’d likely be able to cut back your expenses — sometimes dramatically, so you want to set your emergency fund goal, at first, for three to six months’ worth of essential expenses.

Unless you only pay out essential expenses, you must know your bare-bones budget. Here’s how you figure that out:

How to Create a Bare Bones Budget

Start With the Four Walls

Here at Dough Roller, we’re not necessarily on board with everything Dave Ramsey preaches, but his four-wall concept for budgets is pretty solid. The four walls are the things you must pay for to keep living. As Dave Ramsey lists them, the four walls are food, shelter, clothing, and transportation.

Here’s the thing: your budget for your four walls may look different from my own. So, it would be best to consider how it would look to strip these essentials back to their minimums in your particular situation. Let’s do a quick case study of the four walls for my own family.

For my family, the four walls would include groceries, a mortgage payment, utility payments, one vehicle’s gas and expenses, a monthly bus pass, essential medical expenses, and basic clothing for myself, my husband, and our two kids. Dave Ramsey’s four walls don’t explicitly mention medical expenses, but certain medications must be filled monthly.

Those expenses would look something like this:

• Groceries: $400/month
• Mortgage (including property taxes and insurance): $1,730/month
• Utilities: $150/month (average)
• Car Maintenance, Insurance, and Registration: $150/month
• Gas: $100/month
• Bus Pass: $30/month
• Basic Clothing: $50/month
• Medical Expenses: $50/month
• Total: $2,660

Our current budget doesn’t look much like this at all. We spend a bit more on convenience foods, but we could cut back if we had to. Our mortgage would stay the same, but we could be less comfortable saving on utilities. (i.e., My husband likes his air conditioning!)

Learn More: How to Earn Cash Back on Groceries

We currently have two cars, one with a monthly payment. But if the worst happened, we could sell that vehicle and use our paid-off vehicle for my husband, who must have a work vehicle. I could take the bus to and from work if I needed to. And our clothing doesn’t have to be very expensive, as my husband and I have fairly casual workplaces, and we buy most of our kids’ clothes secondhand, anyway.

Your four walls might come in much higher or lower than ours, depending on your situation. For instance, maybe you live in an area where walking or busing everywhere is possible. So, if you lost your job tomorrow, you could sell your vehicle and get by without it. Or maybe you must have two vehicles to get both spouses to and from work.

Or maybe you work in a highly formal environment requiring you to have dry-clean-only suits. If dressing this way is essential, budget for more expensive clothes and the costs of caring for them.

The key here is to think carefully about what you would have to pay in this situation if you were cutting your budget as much as possible.

Add in additional essentials

The four walls are a good starting place and should make up the bulk of your bare-bones budget, but you should also consider other close-to-essential expenses you may want to add to your budget. This might include some of the following items, depending on your circumstances:

• Phone or cell phone service
• Internet service (especially if you work remotely)
• Coffee shops (if you rely on them for internet access rather than paying for home internet)
• Home maintenance
• Medical insurance
• Additional insurance policies (such as life insurance)
• Professional association fees
• Daycare
• School tuition
• Haircuts
• Toiletries
• Pet care items
• Cleaning supplies

Many of these expenses could be cut out, if not forever, at least for a long time. But some are pretty close to essential.

For our family, I’d count phone service, internet service, home maintenance, life insurance, daycare, pet items, toiletries, and health insurance among our essentials. Daycare is the largest of those expenses, but we can’t be a two-income family without daycare. If one of us lost a job, we’d want to maintain our spots at our local daycare or risk being unable to find daycare when we find a job again. Here’s what these expenses would look like stripped down and counted monthly:

• Phone Service: $50/month (if we switched to a lower-cost provider)
• Internet Service: $50/month
• Home Maintenance: $50/month for basic upkeep
• Life Insurance: $55/month (we wouldn’t want to lose this coverage!)
• Daycare: $800/month (and that’s cheap!)
• Pet Items: $30/month
• Toiletries: $20/month
• Health Insurance: $250/month
• Total: $1,305

Health insurance is an iffy expense to include here, I think. It depends on why you’re calculating your bare-bones budget. Count your current health insurance costs to cut back on this budget to knock out debt. But if you’re looking at what would happen if you lost your job, consider how your job loss would possibly make available options like government-subsidized insurance.

Again, your next-to-essential expenses probably differ from mine, depending on your situation. The key is to think clearly about how much you would need for expenses like these should you need to cut your budget to the bone.

Steer clear of bankruptcy if you can

What about debt payments? You should include your minimum debt payments if calculating your bare-bones budget to set an emergency fund goal.

Related: How to Get Out of Debt… and Fast

But what if the point of this exercise is to cut your budget back so that you can get out of debt? In this case, you might look at your budget like this: First, pay essential expenses, then put everything else towards debt. In this case, your minimum debt payments (other than those like your mortgage that are part of your four walls) don’t need to factor in. You’ll just put whatever is left each month towards debt.

For me, long-term debts like my and my husband’s student loans would be part of our bare-bones budget. Even if we lost a job tomorrow, we’d do everything possible to pay these debts to avoid negative credit consequences. Minimum credit card or personal loan payments might also factor in for you.

So, if I add minimum student loan payments based on our current repayment plans, that’s $215 monthly.

Add it all together

So, if you want to know your bare-bones budget, add these three figures together. For my family, the total comes to $4,180. And again, some of the expenses I’ve included — such as toiletries and even debt payments — could be stripped or stretched for at least a short period.

With that figure, I could say that the first $4,180 of our monthly income goes toward essential expenses. Whatever is left over can go towards debt. Or I could calculate my emergency fund savings goal- somewhere between $12,540 and $25,080 for the standard three- to six-month expenses.

How to Use a Bare Bones Budget

So, how can you use this budget in your everyday life? You’ve got a couple of options:

• Stick to it. To stick to this stripped-down budget (which I wouldn’t recommend doing for longer than you need to!), consider doing a cash budget. Pay your essential monthly expenses upfront, and then use cash for variable expenses like gas and groceries. Or use a budget app to ensure you stay within range on all these line-item expenses.
• Guide by it. What if you want to use your bare-bones budget as a guide to make sure your spending doesn’t get too out of control in any one area? In this case, write down what you could live on each month, and then start tracking what you do live on.

For instance, say you could feed your family for $300 monthly, but you spend $600. It might be time to look at ways to cut back on grocery spending!

Or, say you could get by without a vehicle if you had to, but your car expenses total $1,000 per month. Is it worth continuing to pay that much for your car payment, maintenance, gas, and more? Or could you find a way to moderate that expense?

Learn More: 4 Budget Types and the Best Tools for Each

Ramsey says you should live on a bare-bones budget while getting out of debt. Sometimes, this is appropriate, especially if you can pay off a big debt in three or four months. However, sustaining this tight budget over the long haul is extremely difficult. Plus, it might defeat the purpose. The goal of managing your money is to give yourself more options and to enjoy life more, not to live like a miser who never enjoys anything!

Writing down your bare-bones budget is a good exercise, though you might not want actually to live on this budget unless you must. But it gives you a place to start when determining your monthly expenses.

A Few Budget Apps to Get You Started

If you’re struggling to create and follow through with a manual budget, you may need some help. If so, plenty of low-cost budgeting apps can help you succeed.

YNAB

YNAB is one of the most popular budgeting apps available. It centers around Four Rules: 1) each dollar in your budget is assigned an expense category, 2) you will anticipate large, occasional expenses, 3) you’ll build flexibility into your budget, and 4) you’ll “age your money.”  Aging your money brings you to a point where you begin paying this month’s bills using money accumulated from the previous months. Once you reach that stage, you’ll move past the paycheck-to-paycheck cycle and gain greater control over your finances.

YNAB is available for a monthly fee of $14.99 or an annual payment of $99 (the equivalent of $8.33 per month).

Read our YNAB Review

Buxfer

Buxfer is one of the most comprehensive budgeting apps available. In addition to budgeting, it also offers forecasting, investment tracking, and retirement planning.

Engaging in international transactions or having foreign-based accounts is especially valuable. That’s because it can work with more than 100 currencies in over 150 countries. It uses a user-friendly question-and-answer format, making it easier for you to access any information you need to manage your finances better.

Buxfer offers three different plan levels:

Monarch Money

Monarch Money starts by having you add all your financial accounts to the dashboard. That includes savings and checking accounts, investments and retirement accounts, loans, and credit cards. You can then set goals, and the app will help you to reach them.

Though it is not an investment service, Monarch Money will provide investment assistance by analyzing your accounts, helping you balance your allocations better, and project future valuations.

Monarch Money is available for a monthly fee of $14.99, or you can sign up for an annual plan at $99.99 – the equivalent of $8.33 per month. It all begins with a seven-day free trial. You can add unlimited household members to the app at no extra charge.

Read our Monarch Money Review

Frequently Asked Questions (FAQ)

The post How to Create a Bare Bones Budget in 4 Easy Steps appeared first on Doughroller.