Budgeting 101: Financial Planner Kamila Elliott Outlines Key Steps

As the year 2023 comes to a close, financial planning takes center stage. In the realm of personal finance, setting an annual budget is often underscored as a pivotal step towards achieving financial goals. Kamila Elliott, a certified financial planner at Collective Wealth Partners and esteemed member of CNBC’s Financial Advisor Council, breaks down the process of budgeting into three cardinal steps: determining net income, calculating expenses, and setting a financial goal.

Understanding Net Income

The budgeting journey begins with gaining a thorough understanding of one’s net income, the amount that remains after deductions such as taxes, withholdings, and benefits from the gross pay. This figure is the cornerstone of budgeting, providing a clear picture of the funds available for allocation.

Calculating Expenses

Expenses, the next component of budgeting, are bifurcated into fixed and variable categories. Fixed expenses include inescapable costs like rent and car payments, while variable expenses encompass fluctuating costs such as groceries and dining out. The aim is to gain an unobstructed view of monthly spending.

The 50-30-20 Budget Rule

Elliott underscores the 50-30-20 budget rule, recommending that 50% of take-home pay be allocated to immediate needs, 30% to desires, and the remaining 20% to savings or debt repayment. This rule serves as a structured guide for individuals to balance their spending and saving habits effectively.

Despite the evident advantages of budgeting, research from BMO Financial Group reveals a startling reality: 40% of Americans do not make financial resolutions for the new year, and an astounding 68% do not maintain written financial plans at any point during the year.

The webpage further outlines a year-end financial checklist for 2023, encompassing tasks such as reviewing monthly budgets, maximizing contributions to retirement plans, checking progress on debt repayment, obtaining a free annual credit report, reviewing beneficiaries, completing open enrollment for employer benefits, and reassessing tax withholdings. It also highlights the offerings of Ascend, including checking accounts, budgeting tips, management of subscription services, and a unique saving plan for the holidays with their Christmas Club account.

The article implores viewers to delve deeper into the intricacies of setting an annual budget, urging them to watch an accompanying video for more comprehensive guidance.