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Why Budgeting Is Important and How To Create A Financial Plan

Personal Finance /

Creating a budget means tracking your income and expenses. How much money do you make each month, and how do you spend or save that money? Is there room for improvement? A budget puts you on a path to achieving financial goals. Budgets can be flexible, since they’re meant to keep people on track, and not set in stone. The important part is cash flow: being able to afford expenses as needed.

  • Short-term goals: Don’t overspend your money. Make sure it’s allocated properly so you don’t run out of cash.
  • Medium-term goals: Save money for large expenses or unforeseen major emergencies within the next couple of years.
  • Long-term goals: Properly manage debt, save money toward retirement, or other future goals.

Everyone needs a budget, from individuals to large corporations. Proper accounting can be game-changing or even life-saving. And it’s easier and faster to set up than most people believe. There are different ways to create a budget. Some people like to do it manually (Excel Spreadsheets, written notes, etc.) while others prefer budgeting apps to automatically do the heavy lifting. We have a list of potential tools at the bottom of this article.

Many finance experts currently advocate a “50-30-20 rule” for budgeting.

  • 50% of your income toward essentials/needs (rent or mortgage, bills and utilities, transportation, insurance, groceries, etc.)
  • 30% of your income toward “wants” (dining out, shopping, subscriptions, travel, hobbies, etc.)
  • 20% of your income toward debt repayment, savings, or investments

If you’re doing very well, you want increasing percentages of money to go into savings/investments/assets. At basic levels though: When it comes to savings, first aim for a $1,000 emergency fund. It’ll give you some breathing room if something bad happens. After that, aim for having 3 months of expenses covered. The most common recommendation for an emergency fund is 3-6 months of expenses. This is another reason to create a budget. If you don’t know what your expenses are, then it’s impossible to accurately determine the size of your emergency fund.

Overall, these budgeting guidelines are to help people get started. There aren’t strict rules and you probably don’t need to micromanage funds. You’ll have to create a budget based on your unique situation. Specifics are always subjective. After reading this entire article, you should know exactly what to do.

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Cash Back Rates vs Sign Up Bonuses: Which Is Better?

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What’s better to have from a credit card? A high cash back earn rate, or a high sign-up bonus?

It depends mostly on how often you’ll open credit cards. If you only open one new card a year, cash back is generally a better aim. If you want multiple cards, sign-up bonuses (SUBs) are better than cash back earnings. Earn rates are often more long-term oriented, and SUBs are often more short-term oriented. A sign-up bonus is typically equivalent to getting 10-30% cash back, while credit cards usually give 1-5% cash back.

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How To Earn More Cash Back With Bank of America Preferred Rewards

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Bank of America’s credit card options are reasonable in general. What sets them apart, however, is the bank’s Preferred Rewards program. The more money you have with BoA, the more you earn with their credit cards. While each tier has a variety of benefits, YMMV in terms of usefulness. We’ll primarily cover the credit card information in this article.

To enroll in Preferred Rewards, the requirements are simple: have a “qualifying” Bank of America deposit account (such as a personal checking account) and/or Merrill investment account(s), with a three-month combined average daily balance of $X or more. Depending on what X is, you’ll gain access to one of the below tiers. You don’t need to keep exact amounts since it’s a combined average.

Once you qualify for a tier, you’ll retain that tier status for at least 12 months. Your balance can temporarily dip without consequence. BoA goes on to say “If after a year you no longer meet the balance requirement, you’ll have a three-month grace period. If you haven’t met the balance requirement after three months, you’ll be moved to a lower tier or lose your Preferred Rewards benefits.”

Note that you have to manually enroll into the program to get any benefits. It isn’t automatically awarded to customers who may qualify.

There’s also a business version of Preferred Rewards with slightly different requirements and benefits.

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Explaining The Chase Trifecta And How To Maximize It

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The “Chase Trifecta” is combining three specific Chase cards to gain more value than using just one of those cards.

Although Chase advertises its two Freedom cards as earning cash back, these cards actually earn points (Chase Ultimate Rewards). These points can be redeemed for cash back at $0.01 each (1 Cent Per Point, or 1 cpp). However, we can increase the value after transferring UR to a Sapphire Preferred or Sapphire Reserve card.

The Preferred makes each point worth $0.0125 each (1.25 cpp or 25% more) and the Reserve makes each point worth $0.015 (1.5 cpp or 50% more) when redeeming points against certain purchases or travel expenses. It might not sound like much, but this quickly adds up. And in some cases, the points can be transferred to Chase’s travel partners for even more value.
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Anti-Churning Rules and Chase 5/24 Explained

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“Churners” seek sign-up bonuses and other rewards by opening lots of credit cards. In most cases, they’re legitimate customers who want extra cash back or free travel. A lot of credit cards offer great rewards and bonuses. As people become more educated about credit cards (CCs) some inevitably want to maximize (or abuse) the system, despite risks to their credit scores.

As a result, banks have implemented rules (sometimes unofficially) to deter churners. They naturally aim for a positive ROI on customers. Here’s a compilation of the most important things to keep in mind. Keep in mind that this isn’t a comprehensive list of all rules/guidelines, and things are subject to change.

As a side note, some banks might shut you down if you go too hard and fast. They can take away points or close your cards. We recommend applying for 1 new card every 3-4 months, to start. If you have higher risk tolerance, maybe apply for a new card every 2-3 months, once your credit history is pretty well-established. Don’t go overboard. Start with credit cards that you’re likely to use on a regular basis, and pay your balance in full every month.

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