How to Get Started Budget Planning

If you’re thinking about creating your first personal budget, it is natural that you might feel overwhelmed; after all, there is a lot to consider. But the important thing is to simply get started. Though your first budget might not be perfect, it is just your first step towards achieving your financial goals.

With this in mind, here are some tips to help you get started:

Audit your Spending

Before you create a budget, you need to understand how you are spending your money. By examining your spending habits (ideally for the past three to six months), you can create a clear picture of exactly where your money is going – information you can use to plan your budget, spot trends, and find ways to cut back.

Split expenses into categories

Once you understand how you have spent your money in the past, it’s important to group each of your purchases into a specific category (housing, utilities, food, entertainment, etc.) This will make it easier to plan out your first budget, and can also help you prioritize certain expenses over others.

Choose a budgeting strategy

Select a budgeting strategy that you believe will help you reach your goals, and start using it.

Take advantage of free tools

There are countless free tools that you can use to start a budget and stay on track. Apps like Wally and Mint can help you track your spending and bills, and there are dozens of free budgeting worksheets and templates available to download across the web (like the ones here).

Remember to factor in savings

At a minimum, you budget needs to account for your expenses: in essence, how you will spend your money. Ideally, though, it will also factor in savings and other financial goals.

Revisit and adjust

Remember, a budget should be a living document that you revisit each and every month as your spending habits change and you progress towards your financial goals. Don’t be afraid to adjust your budget as necessary to find something that works for you – even if it means potentially starting from scratch by trying a different budgeting strategy.

(This article written by: Tim Stobierski)

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Types of Personal Budgets

At its heart, every budget is simply a document that subtracts your expected expenses from your expected income. But there are actually many different budgeting strategies that you can use to track your spending and plan how you will use your money.

The budgeting strategy that’s right for you will depend on your own personal financial goals. There is no right or wrong answer. Below are some of the most popular types of personal budgets that you might consider choosing from.

  1. 50/30/20 Budget

To follow the 50/30/20 budget, you will take your net income (your take-home pay after taxes and other payroll deductions) and divide it into three categories: 50 percent to your needs (things like rent, utilities, debt payments, food); 30 percent for your wants (things like entertainment, eating out, and clothing), and 20 percent for your savings (like saving for retirement, emergencies, and other goals).

This type of budget is popular with those who are new to budgeting, and for good reason: It’s one of the simplest budgets to set up and follow. It offers structure to guide your spending, but also gives you the flexibility and freedom to indulge every once in a while so long as you still fall within the appropriate expense ranges.

  1. Envelope Budgeting

The envelope budget involves splitting out your expenses into different expense categories and designating a specific amount of money that you can spend on each category.

For each category (for instance, groceries, entertainment, etc.), you will carry a physical envelope, which you will fill with a predetermined amount of cash and bring with you when you plan on using that pool of money. Once you’ve spent all of the money designated to a specific category, that’s it—you’re done. If you finish the month with cash left over in an envelope, it’s typically recommended that you use it to bolster your savings or pay down your debt.

Envelope budgeting is often used by individuals who are trying to rein in their spending, for a number of reasons. Strict limits for individual categories make it easy to know exactly where your money is going. Paired with the psychological effects of spending physical money (and, in this case, watching your pool of available funds dwindle over the course of a month), it can help you make better decisions about how you spend your money.

  1. Zero-Based Budgeting

Zero-based budgeting involves taking your monthly income and deliberately assigning every dollar a task to perform: paying for food and groceries, covering your utilities, contributing to savings, etc. The goal is to have a balance of zero dollars at all times.

By giving every dollar a specific job to do, zero-based budgeting makes tracking your spending pretty easy, which can help curb overspending. It can also be effective for those who find that they have very little wiggle room in their budgets, because it helps you make every dollar count.

  1. Pay Yourself First Budgeting

The “pay yourself first” budget method is exactly what it sounds like: Each month, you decide what percentage of your income you want to designate to saving or other financial goals, and you immediately transfer that money out of your checking account. You can spend the rest of your money however you wish, so long as you meet your obligations.

Because this budgeting strategy prioritizes your financial goals over all other expenses, “pay yourself first” budgeting can work for those who have struggled to save enough in the past, as well as those who have particularly ambitious financial goals.

(This article written by: Tim Stobierski)

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What Is a Budget and Why Should I Use One?

Here we explore what a budget is, examine different types of common budgeting strategies, and offer simple steps that you can use to create your own personal budget.

What Is a Personal Budget?

A personal budget is simply a plan for how you will spend your money during a specified period of time – commonly one week or one month. A budget starts with your income, from which you then subtract your expected expenses. Depending on your particular budgeting strategy, you might list out each expense line by line, or you might choose to group them into broader categories to offer some flexibility.

Why Is a Budget Necessary?

A personal budget is an incredibly helpful tool for a number of reasons.

For starters, creating a budget requires you to confront your spending habits in order to identify where your money is going. While this can be uncomfortable for some of us, it can also be an eye-opening experience. If you don’t know where your money is going, it can be very difficult to make any progress towards your financial plans – whether you want to cut down on your spending, save for retirement, pay down debt, or something else.

Beyond this, a budget offers you a quick snapshot of your financial health. For example, if you create a budget and find that you have money left over after all of your expenses have been covered, that means you are living below your means, which presents some money that you can put to use elsewhere (such as savings, investing, or paying down debt). If your expenses use all of the money you’ve allotted, then you’re living within your means. And if your expenses are greater than the money you’ve allotted, then you’re living above your means and should find a way to cut back, or else you may find yourself relying on incurring debt to get by.

The fact is that a budget helps you to plan. By listing out your expenses for the week or for the month and understanding how much money you have left over, you will be better able to identify a cash flow problem ahead of time, which can help you avoid turning to debt like credit cards to cover your expenses.

(This article written by: Tim Stobierski)

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Smart Investing Principles

Whether we’re in the throes of a recession or not, it’s always wise to keep up smart investing principles—it’s the best way to grow wealth over the long term, after all. In addition to staying invested, keeping your portfolio diversified, and reinvesting dividends (which Acorns does for you), try and keep your timeline in mind.

Keep a long-term perspective

If you’re a long way out from retirement, market turbulence in the short term shouldn’t cause you too much stress. History shows that they’re perfectly normal parts of the economic cycle, and things tend to bounce back. After the Great Recession, it took roughly four years for the Dow Jones Industrial Average to eventually hit a new high. But here’s a little secret: long-term investors who stuck with it were the ones who were positioned to net the greatest gains.

Consider your goals

Your goals play a big part in your investing habits, as well. If you’re saving for your kids’ education, for example, a 529 plan is usually your best bet. And while a regular brokerage account is a great place to grow your wealth slowly to fund long-term goals, saving for retirement in a 401(k) and/or Traditional or Roth IRA will open up tax breaks you can’t find anywhere else.

When all is said and done, a recession shouldn’t really affect your long-term investing plan all that much. The trick is to keep your emotions in check and, if possible, invest even more during market downturns. A well-thought-out investment plan is one that’s built to withstand market volatility and slumps, which is an inherent part of investing.

Investing involves risk, including loss of principal. Past performance does not guarantee or indicate future results. This information is being provided for informational purposes only, and is not intended to provide, and should not be relied on, for accounting, legal or tax advice. You should consult your tax or legal adviser regarding such matters.

(This article written by: Marianne Hayes)

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Investing Strategies for a Recession

Consider dividend-producing stocks

In addition to dialing up your retirement contributions, a recession is also a great time to leverage different investing strategies. If guaranteed income is a priority, and for many it is, look to dividend-producing stocks. Some companies pay out periodic earnings to shareholders called dividends. This is on top of regular earnings. During a down market, these types of stocks could position you to continue to earn money, despite volatility. (And if you can reinvest them, all the better.) According to Siblis Research Ltd, the average dividend payment for U.S. stocks at the end of 2019 was 1.8 percent of the original investment.

Research which sectors are poised to grow

Another thing to think about are the sectors that are poised to stay active during and after the recovery. While this is impossible to predict with certainty, data shows some sectors have grown in this stay-at-home economy like e-commerce, food delivery, telecommuting services and the like. Healthcare services, particularly ones with remote capabilities like telemedicine, could be another sector that sees growth during the economic turnaround.

Invest in a diverse mix of stocks

Investing in a variety of industries should serve you when it comes to keeping your portfolio diversified, which helps mitigate risk. Going with exchange-traded funds (ETFs) and low-cost index funds, which can include hundreds of different stocks, also provide the opportunity to diversify and balance risk so you’re more likely to benefit from the eventual market recovery.

(This article written by: Marianne Hayes)

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Investing During A Recession

This may feel counterintuitive, but a down market is actually one of the best times to invest because we generally see a drop in asset prices. That means stocks, bonds and mutual funds are likely cheaper than they are during a bull market. In other words, stocks are essentially on sale right now and prices are dropping in kind.

Take advantage of dollar-cost averaging

Experts agree that one of the easiest ways to take advantage of this is to leverage a strategy called dollar-cost averaging. All this means is investing on a schedule and sticking to it, regardless of market ups and downs. If you have a 401(k), you’re already doing this. (If you’re an Acorns investor, you’re also doing this if you have Round-Ups or Recurring Investments enabled.)

Now is the time to continue kicking into your retirement funds and other investment accounts—even upping your contributions if possible. Staying committed over the long term and locking in these investments with automatic contributions means that you’ll be able to take advantage of future dips in the market when they eventually come, and you won’t be spooked into pulling out during periodic downturns.

Just keep in mind that investing now means that you’ll have to wait until the market kicks back up to realize future returns.

Maintain sufficient savings

Maintaining a healthy savings account is critical to your investment plan and overall financial health, too. As we hinted at earlier, one of the major reasons behind the massive sell-off we’re seeing in the market right now is that many people need cash now. One in four Americans have either lost their job or experienced a pay cut because of the coronavirus shutdown, according to a recent CNBC survey. For many, selling stocks at a loss is their best worst option.

This pandemic is underscoring just how important it is to have cash reserves on hand should disaster strike. Most experts suggest stocking up your emergency fund with three to six months’ worth of expenses. The idea is to keep this money in a bank account so that you’re able to access it quickly if you’re financially strapped. A high-yield online savings account is a great option in terms of earning the most on interest.

(This article written by: Marianne Hayes)

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How to Invest in a Recession

The most important thing to remember about markets is that they have always recovered, despite the severity of past downturns. That’s why it’s vital to take a long-term view, rather than dwell on today’s stomach-churning ups and downs.

In addition, you want to avoid locking in losses by selling when your portfolio is at a low point. By maintaining your investment discipline, you can allow yourself to be in a position to profit from a market rebound. After all, market drops represent the “buy low” part of the tried-and-true “buy low, sell high” investment ideal.

It’s always wise to maintain a diversified portfolio, by making investments in different asset classes, and that is especially great advice in an uncertain market. Investing in mutual funds and exchange-traded funds (ETFs) is one way to gain access to a broad array of investment products. (For example, Acorns portfolios include a mix of ETFs offering exposure to thousands of stocks and bonds.)

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Saving Money in a Recession

While we can all look forward to emerging on the other side, there is likely to be additional short-term pain attached to this recession, so bolstering your emergency savings is a wise step right now.

Take a look at your budget over the past few weeks to identify areas where you’ve experienced unexpected savings, such as commuting expenses, clothing, personal services and almost certainly travel and entertainment. If your situation allows, take those savings and sock them away into a high-yield savings account to help protect your finances in case of a job loss. Or, if you already have adequate savings, consider investing that money.

The best way to navigate these tough times is to focus on the bright spots you can find today. Identify ways to maximize opportunities that align with your own personal circumstances, time horizon and financial goals and set yourself up for success as we eventually emerge from this tunnel.

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What Industries are Historically Recession Proof?

As mentioned, not everyone feels the pain equally in a recession, and some industries and jobs are better positioned than others to survive this unprecedented economic situation and even thrive. It’s important to note that the 2020 recession is different from previous ones like the Great Recession of 2008 because of the nature of its abrupt onset and the shelter-in-place rules that followed the coronavirus pandemic and have wiped out traditional commerce.

Therefore, no one can precisely predict the impact on specific sectors. But there are some industries that are traditionally recession proof given their “defensive nature.” In other words, they offer more conservative products and services that people tend to seek no matter what the circumstances. Those can be good places to look for jobs and/or park your investments if you’re looking for individual stocks. Here are a few to consider.

Consumer packaged goods (CPG)

While Americans’ wallets have been walloped, they still need consumer staples, and there have been a number of CPG companies that have flourished as consumers stock up on basics and return to the comfort of brands and products they trust. That could spell good news for large, established companies that sell products that consumers continue to buy in a downturn and pandemic, from food to cleaning products to, yes, toilet paper.

Health and beauty products

While these often fall under the umbrella of CPG, it’s likely to be a stand-out industry in its own right. Companies that make affordable luxuries tend to prosper in a downturn, given that consumers still want to feel good about themselves, even if they can’t spend the big bucks. So this sector tends to be recession resilient.

Government

If you’re job hunting, government jobs usually provide resilient opportunities. They aren’t entirely immune, especially as municipal revenues plunge. However, statistically, these are relatively safe and the government sector encompasses a wide swath of jobs of all types and levels. In fact, almost any job that one would do in the private sector has a counterpart in the government. While salaries might not quite match up, you might find more job security pursuing your existing job in a governmental capacity.

Healthcare

With elective procedures on hold, some healthcare jobs may have been lost, but that should even out as governments lift those orders. Healthcare jobs are typically spared in a recession—from home health aides to physical therapists. And of course the healthcare industry can be a great place to invest, especially in sectors like life sciences that are helping develop tests, vaccines and pharmaceuticals.

Construction

Construction jobs are largely insulated, although that could change if the real estate sector continues to dip. But, other positions that should withstand most crises are those related to necessary infrastructure-related functions, such as plumbers and electricians.

Technology

Computer- and technology-related jobs are likely to hold steady. Look for jobs in areas that support vital business activity, such as a computer support specialist, programmer or information security analyst, and investments that provide necessary hardware and software.

Retail

You may initially scoff, but while brick-and-mortar stores, particularly in malls, have been decimated, there are other areas that are thriving. Grocery stores have seen an uptick in jobs and sales, as have big-box stores. In a recession, discount outlets and DIY-focused stores should continue to do well as thrifty consumers reel in their spending. And large e-commerce players that sell basic goods and at-home products are doing particularly well.

Pet products

Fur babies rarely get short shrift, even if consumers are economizing in other areas. That means in addition to affection, they are likely to continue getting lavished with treats, toys, top-notch medical care, even gourmet food.

(This article written by: Cathie Ericson)

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What can I do to prepare for a recession?

Is a recession imminent? Well, we haven’t experienced two quarters of economic contraction yet, but it certainly appears that we’ve entered recession territory. Indeed, Goldman Sachs, JPMorgan Chase, Bank of America and others say the U.S. is already in a recession and predict GDP will be down for the first and second quarters of this year.

So, what can you do? The best strategy is to maintain sound financial habits that you should adhere to all year long, such as carefully budgeting and watching spending, building an emergency fund and saving aggressively. (And if you don’t already do these things, there’s no time like the present to start cultivating these habits!)

Here are three additional suggestions:

1. Don’t panic, but be cautious

This is the time to be more mindful than ever about your spending. Focus on covering the essentials and look at what purchases you can put off or skip entirely, so that you can shore up your savings in case you do lose your income. With travel on hold, and many bars and restaurants closed except for take-out, there are opportunities to trim spending in those categories. You can also save by buying key items—like paper goods and pantry items—in bulk.

2. Have a back-up plan

What would happen if you lost your job? Do you have a skill that you could put to use in a side gig? And could you start using it today to improve your marketability and/or build up an extra cushion in your emergency fund? Being prepared is always the best antidote to a surprise job misfortune.

3. Consider bolstering cash reserves

In addition to bulking up your emergency fund, you might want to have an extra stash of cash on hand so that you don’t have to sell stocks when they’re down or incur penalties by taking funds out of your retirement accounts to stay afloat if you hit rough water.

It’s natural to be fearful in the face of a recession. But taking steps now to safeguard your finances can help keep you on more solid financial footing.

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