Do you financially break-even at the end of the month?
Find out what you might not be prepared for when there is no money left over at the end of the month.
When it comes to finances at the end of the month, consumers will fall into one of three categories. Either they will have money left over, be in the negative or break even. For those who “break-even” each month, know that you are not alone. Per the National Financial Capability Study conducted in 2012 by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation, 36 percent of individuals in the United States reported making ends meet. While breaking even at the end of the month is certainly different than being in the negative, it leaves individuals and families in a fragile position because they are not saving for emergencies and non-monthly expenses.
Consider the benefits of saving! Create an emergency fund or rainy day fund to help with unexpected expenses. Aim to save 10 percent of each paycheck. If this is not feasible than save loose change. Remember no amount is too small. Keep in mind that industry recommendations encourage consumers to save three to six months of monthly expenses, so this could be a potential short/medium term financial goal to strive for. To learn more about financial goals visit Michigan State University Extension. Don’t forget the benefit of an emergency income fund. This savings fund is for unplanned loss of income which could be due to a variety of issues including: down-sizing, plant closing, injury, illness, etc. Remember, it could take three to six months or longer to find a new job.
So what are non-monthly expenses? They are those expenses that we know we will have, but do not receive a monthly bill for them and are therefore easy to “forget” and not plan for. Examples of non-monthly expenses could include: auto insurance premiums, school supplies, home or auto repairs, medical expenses and co-pays, and costs associated with special events or holidays.
How can consumers prepare for costs associated with emergencies and non-monthly expenses? Create a budget or spending plan. Budgets can be paper and pencil, a budget template or a computer program. Visit Michigan State University Extension for a variety of budget resources. Remember for a budget to be effective it should include: savings, all expenses (i.e. fixed, variable and occasional), and all income. Balance your budget monthly. Saving plus your total expenses equals your income: if this is not true, increase your income and/or decrease expenses and spending.
When you make small changes, they can really add up. Finding extra money in your budget will help you meet your financial goals and help you create an emergency fund. For a variety of financial resources, including how to develop a monthly budget and set financial goals, visit Michigan State University Extension. In addition, Michigan State University offers money management and homeownership classes. For more information about classes offered in your area visit MI Money Health.