In my last article, I discussed how important it is to have your “financial house” in order. That is, making sure you have all your financial and other important papers together, and knowing where you stand financially. Once you have done that, you should begin the task of looking at your budget with the goal of planning for financial independence. That doesn’t mean that you plan to be rich; it just means that you plan to be debt-free.
Valerie RumboughWhen you consider mortgages, college for children, etc., a good time frame for achieving this goal would be no later than when you retire. A good place to start is to look at your current spending habits. Are you spending more than you make? If so, you are headed in the wrong direction. Make sure that you can put away approximately 10 percent of your income, at a minimum, into some type of savings – retirement, emergency, vacation, etc. This amount will fluctuate, depending on your age and when you began saving.
A good rule of thumb for a family budget is to plan for 10 percent for tithe, 20 percent for taxes, 10 percent for savings, 25 percent for housing and utilities, and 35 percent for groceries, gas and other expenditures. This can fluctuate depending on your income, family size, and certain fixed costs, such as health insurance.
However, if your actual spending is vastly different, maybe you should consider downsizing your house, car, or other flexible item to fit into your budget. Remember that if one area is over budget, you need to take it away from another in order to have a balanced budget (income meets or exceeds expenses).
Don’t be afraid to make those hard decisions. You will be thankful you did when you are ready to retire, and God will bless you for your efforts.
– Rumbough, CPA, CFP, is chief operations officer with the Baptist Foundation of South Carolina. Contact her at 800-723-7242. In accordance with IRS Circular 230, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.