This Category Has a Line Item in My Budget, and Yours Should Have It, Too

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Your budget really isn't complete without it.

Key points

  • My household budget maps out my family's different expenses.
  • Savings is one specific category I like to prioritize in my budget.

Following a budget is a great way to track your spending, make sure you're avoiding debt, and meet your financial goals. If you're new to budgeting, the good news is that it's easy to do. You can set up a budget on a basic spreadsheet or even keep yours on paper. And it definitely pays to check out the different budgeting apps you can use to keep tabs on your expenses.

But if you're going to set up a budget, it should be as comprehensive as possible. That means including an oft-forgotten category that I make a point of prioritizing.

Make sure to account for savings in your budget

A good bet for setting up your budget is combing through recent bank and credit card statements to see what your various expenses look like. But it's important to work one important line item into your budget that may not be as obvious -- your savings.

My household budget actually revolves around my various savings goals. Not only do I have a line item in there for money I want to land in my savings account each month, but I also have a line item for retirement plan contributions.

The reason I put savings in my budget is that doing so helps me stay on track with my goals and understand how much I can afford to spend on other expenses. And it pays for you to incorporate savings into your budget as well, especially if you're low on emergency cash reserves or have yet to really make headway in funding your IRA.

How much of your income should you aim to save?

The amount of savings you'll need to allow for in your budget should hinge on your specific circumstances and goals. Generally speaking, your primary financial priority should be to build an emergency fund with enough money to cover three to six months of essential living expenses. If those essential bills cost you $2,000 a month and you're sitting on a mere $600 in the bank, it's a sign you should be saving a pretty substantial chunk of your earnings until your savings balance grows.

But let's assume that you're good on emergency savings. In that case, you may be more focused on funding a retirement plan.

The general rule is to aim to set aside 15% to 20% of your income for retirement savings purposes. But that's not possible for a lot of people, and if you're one of them, you'll need to figure out a savings goal that's more reasonable -- say, socking away 10% of your earnings.

Furthermore, if you have a specific goal in mind, like saving up a down payment on a home, then your budget should be set up to allow you to meet it. Or, you may have a $6,000 credit card balance you're looking to pay off within a year. To do that, you'll need to set aside $500 a month in your budget to chip away at it.

Don't forget about savings

I keep my budget on a spreadsheet on my laptop, and when I open it up to review it (which is something I like to do every three months or so), the first thing that jumps out at me is savings. Having that number in front of me reminds me why it's important to not go overboard in discretionary spending categories, like leisure. At the same time, that savings line item helps me maintain a budget that allows me to meet the goals I set for myself. If you're ready to start budgeting, it pays to incorporate savings into the mix.

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