I take a responsible approach to the distribution of my budget. Basically, I use a manual process for calculating planned and actual expenses. To optimize the process, I use the bank’s application, in which I see the distribution of the budget by month. Since I set aside enough money in advance to pay off my bills, I always know that I will have enough in my account for regular spending. It is much more complicated with variable expenses, such as vacations or gifts. I usually budget approximately 10% for ‘contingencies’, but this is not enough when planning a summer vacation or gifts for Christmas.
Taxation seriously affects my financial planning: tax refunds at the end of the year, on the one hand, make it difficult to meet short-term financial goals. On the other hand, getting a large lump sum payout can be beneficial. The tax return allows me to achieve one of the major financial goals if there are problems with savings during the year. For example, I can afford an unscheduled vacation or set aside money for a major purchase.
Creating a personal budget is a difficult but necessary process for becoming financially literate. I draw up a personal budget based on an analysis of the expenses and income of the previous months. With the banking app, I can see in which areas of my life I have spent the most money. I analyze such areas, for example, entertainment, and I understand where I can significantly save costs. Budgeting allows me to save money, making it easier to achieve financial goals. In general, I stay within budget when planning large purchases. I am motivated by the possibility of clear planning in achieving material desires.
The savings rate is the ratio of the savings portion of income to total income. The average savings rate in the US in 2021 was 7% (Volk, 2022). However, for ages under 30, it may be slightly lower. My savings ratio usually ranges from 5 to 10 percent. I think that this is a normal ratio, given that I am studying and cannot devote all my time to work. My savings ratio is most affected by impulsive, unbudgeted purchases. To avoid them, I plan to set the rate of such purchases for a certain period of time and try not to exceed it.
Reference
Volk, C. H. (2022). The Value Equation: A Business Guide to Wealth Creation for Entrepreneurs, Leaders & Investors. New York: Wiley.