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How to Budget Using the 50/20/30 Rule

April 24, 2017

One of the first steps to financial success is learning how to budget and sticking with it. Setting up a budget provides visibility and control over personal finances, allowing individuals to track how much they are spending and where and helping them avoid frivolous spending by staying within set limits. However, traditional budgets are not for everyone and for young professionals at the beginning of their financial journeys or business owners and freelancers who might have irregular incomes, sticking to a complex budget may be difficult. Fortunately, there is a different approach to budgeting that is more flexible and easy to use — the 50/20/30 budget.

 

This budgeting system is perfect for people who think they are “bad” at budgeting because it does not require meticulous record-keeping or maintenance. Instead, it is simple and less stringent, and can really work where traditional budgets have failed. The 50/20/30 budget works on a percentage system, with 50 percent of total income going toward paying fixed expenses, 20 percent is allocated to savings or other financial goals, and the remaining 30 percent is flexible spending money. Let us break it down a little further:

 

50% – Fixed Expenses/Essentials

 

Instead of allocating money into dozens of different categories as one would in a traditional budget, a 50/20/30 budget only has three categories. The first, and largest, is fixed expenses or essentials. These expenses are the things that take precedence over all other expenses, as they are the things you cannot live without. These include rent or mortgage payments, insurance, utilities, auto or education loan payments, and anything else you consider essential.

 

Groceries are essential expenses as you cannot live without food, but because buying groceries is a variable and not a fixed expense, it can fall under the essentials category or the 30 percent flexible spending category — this is completely up to you.

 

20% – Savings/Financial Goals

 

Remember the financial goals you set last month? This is where they will go. Money that goes to this category is for saving or investing. Whether you are saving to build an emergency fund, putting back money for retirement, or trying to pay off your student loans or credit card debt faster, 20 percent of your take-home pay should be allocated to this category.

 

30% – Discretionary Spending

 

Here is the fun part — the remaining 30 percent of your income is for flexible or “lifestyle” spending. These are things that are not necessarily needed, including travel, clothing, eating out, entertainment, gifts, and anything else on which you enjoy spending money. This percentage is intended to make life fun; however, if you find yourself needing to cut back on spending, this category should be the first to go.

 

The Perfect Budget for People Who Need Flexibility

 

One of the greatest benefits of the 50/20/30 system is flexibility. If you are at a time in your life when you want to achieve a financial goal, such as buying a home or paying down debt faster, you can adjust the percentages you allocate to each category. For example, if you total the costs of your fixed expenses and they equal 53 percent of your total income, you can adjust your discretionary spending category to equal 27 percent each month. It is all about what works for you and your particular financial situation. If you are notoriously “bad at budgeting,” and you have only tried traditional methods, this may be the right method for you.

 

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2019-03-11
Medical Match Day Finance Tips

Congratulations you’ve worked hard been through multiple interviews and finally, your hard work has paid off! You’ve been matched and you’re getting ready for residency. It’s so exciting to jump into residency and see what having this career will really be like. You’ll have the ability to learn from experienced professionals in your field of interest. Getting yourself prepared for your residency can feel stressful, but it doesn’t need to be. Here are some financial tips to help you get settled and make good choices for your future.  

Set Up Loan Payments

Once you are done with school, you should start paying on student loans. Residency can take several years to complete. It’s likely that your residency isn’t paying you what a full-time position in your career will so all the medical school debt that’s accumulated, can be difficult to sort through. If you find yourself with a large amount of federal
student loan debt, look into income-based repayment plans. We would recommend this as a temporary solution until you’ve completed your residency program.  This will assure that you’re making student loan payments towards your medical school debt, but that those payments are not impossible to complete. You may eventually qualify for public loan forgiveness on your federal student loans. If you qualify to get on an IBR plan in residency after completing the program you may only have a few years remaining.     If you also have private student loans there is no need to worry. Most private student loan lenders will work with you to offer some type of payment plan. You may want to consider refinancing your medical student loan debt. In order to qualify for student loan refinancing, you may need to add a cosigner due to income you’ll be making in your residency. Regardless of which route you chose, in the first few months after graduation, you’ll want to have your payment plan set up. Don’t let this task fall off your radar—in-school deferment ends shortly after graduation for most kinds of medical school debt.  

How to Reduce Medical School Debt

   

Make a Budget

The average income for first-year medical residents is about $55,000, according to a recent report. That money may not go very far with your loan payments and other living expenses. It’s crucial to set your budget and stick to it. Many medical professionals suggest living with roommates, carpooling, using public transit, and setting a budget to keep other spending at a minimum.    

Look Into Your Benefits

If you’re starting off pretty frugal until you get accustomed to your new budget, that doesn’t mean you shouldn’t think about saving for the future. When it comes to saving for retirement, the sooner the better. Employer matches and retirement programs should be on your list of things to do early in your residency. Take advantage of match money for retirement if your employer offers it. Match money from your employer is free money! Don’t miss out on that opportunity, and check out the rest of your benefits while you’re at it. There are usually several perks and programs you can look into that might help make your transition to residency more comfortable.  

Set Up Housing

Speaking of housing arrangements, there is conflicting advice on whether or not it makes sense to buy a home vs. renting while in residency. Since most residents spend long hours working and don’t have time for household maintenance or upkeep, buying a home can be a difficult choice. Plus knowing that you might not choose to live in the same place long term cause many experts to advise renting. Look at your unique situation and make sure you’re weighing all of these factors when you decide what to do for housing.   As far as finding somewhere to live, location will probably be top of your list. After working long hours and several days in a row, having a long commute is the last thing you want. If the area near your work is not cost-effective, look for ways to get connected with a good roommate or two. Research the area before you relocate and stick to your budget for housing costs so that you don’t end up being rent-poor or house-poor.  

Practice Self-Care and Routine

Residency can be engrossing. You’re so involved in your work role and in living the life of a busy resident, that it’s not uncommon to let self-care fall by the wayside. Remember, you can’t care for others if you haven’t cared for yourself. Make sure you’re doing what you can to stick to healthy habits, even if there are days you’re low on sleep or not making the best food choices. Getting rest on your time off, enjoying your hobbies even in small doses, and exercising or meal planning can help make sure you’re cared for even with a busy schedule.   Enjoy your new life adventure!  

Ways to Save on Student Loan Debt During Residency

  NOTICE: Third Party Web Sites Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.  
2019-03-04
What Credit Score is Considered “Good”? What to know about Credit Scores

This guest post was provided by Debt MD ®, a free service that connects consumers with the professional help they need to become debt-free. Debt MD aims to make the path to financial freedom as quick, simple, and stress-free as possible. A good credit score is becoming more important. A good credit score illustrates to lenders that you are a responsible borrower. There are three major credit bureaus that report on your credit history and determine your credit score.  The higher your credit score, the more you’ve established yourself as a responsible borrower. The higher your credit score the more likely it will be to receive favorable interest rates and loan terms.   Did you know credit scores can be requested from other organizations outside of the financial industry? Credit scores not only illustrate responsibility as a borrower but provide a snapshot of how you handle finances. When you want to establish services like a phone, utilities, insurance, or even rent an apartment, providers look at your credit score. This allows them to choose whether they should allow you to obtain their service or not. Even employers are now looking at credit reports prior to hiring someone.  

Who Determines a Credit Score? 

What’s a three-digit number that can either make or break your financial deal? Yes, you got it right, it’s your credit score! There are several different types of credit scores generated using your credit report. So, in simplicity, you determine your credit score, since you control how you utilize your credit and finances.   A credit report is just that a report on your credit history. It includes details regarding credit card payments, loan payments, and the status of each. Your Credit Score is then calculated using your credit report. Most commonly used is the FICO® score developed by the Fair Isaac Corporation.  

What Makes Up a Credit Score?

  The FICO® Score is the most widely used credit scoring model. In fact, according to Fair Isaac Corporation FICO® Scores are used in 90% of United States credit lending decisions. FICO® Scores are calculated using five main parts of your credit report. The FICO® Score utilizes amounts owed, new credit, length of credit history, payment, history, and credit mix to calculate your personal score.  Each category represents a percentage as illustrated on the chart below, to create your full FICO® Score.  

What’s a Good Credit Score?

  We now know what a credit score is, what attributes to it, and the main type of credit score used throughout the lending industry, but what is a “good” credit score? Generally, FICO® Scores range from 300 to 850.   Here is a look at the FICO® Score ranges and their equivalent rating.  

Credit Score Range: Rating

300 to 579: Very Poor 580 to 669: Fair 670 to 739: Good 740 to 799: Very Good 800 to 850: Exceptional   It is important to note that a “good” credit score cut-off will vary depending on the type of financial institution that you are dealing with. For instance, if you are applying for a mortgage loan, to qualify your score typically must fall between 700 and 759. To qualify for an auto loan your score would ideally be above 740, and to get the best rewards credit card you typically should have a score of 720. If you’re looking to refinance student loan debt you’ll likely be required to have a 650 credit score or higher.   It’s important to recognize that lenders do not solely base their decision on credit scores. In addition to your credit score, lenders may look at your credit history, debt-to-income ratio, assets, and liabilities to determine if you’re a good risk or not. The higher your credit score the better, as it illustrates your reliability as a borrower hence presenting a lower risk to the organization. When a person has a higher credit score they likely will be presented better borrowing options due to their credit history.  

How To Find Your Credit Score?

Checking your annual credit report regularly is one of the most important habits to develop. This is especially true if you want to improve your credit score. By verifying your credit record, you’ll be able to check for errors and discrepancies and dispute them when applicable.   Checking your credit reports will also help you to recognize signs of identity theft, which is becoming more prevalent. You can get your credit report at no cost once every 12 months from each of the three widely recognized credit bureaus (Equifax ®, Experian ® and TransUnion ®) from AnnualCreditReport.com.  

7 Money Mistakes to Avoid

  NOTICE: Third Party Web Sites Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.  
Women looking at jobs on computer with dog.
2019-02-26
Reduce Student Loans for College with These Jobs for Students

It’s not practical to go to college and not have a job. With a number of non-traditional students commuting or even raising a family during school years, being employed is a must. Plus, even having a part-time job not related to your desired field can still prove that you have the skills it takes to manage your time, work as part of a team, and be reliable. Never underestimate the importance of these types of skills on your resume!   With most students taking out student loans or aid, finding a college job can mean that you can reduce your student loans for college and pay some tuition or expenses with your current income. That said, there are some jobs for college students that are better than others. Here’s our take on what are the top jobs for college students and why.  

Nanny

Nannying is a serious skill that not everyone has. If you’re great with kids and can find a gig to match your availability, being a nanny means you’ll get paid well to spend your time helping a family raise cool kids into stellar adults. No longer the $3/hour that you got paid to watch neighborhood kids back in the day, the average nanny rate is $12–$13/hour. You could even get paid more if you have additional skills like foreign languages or child development knowledge. Nanny jobs can be a really great asset to students studying to be teachers. Nannying could be a great introduction to what you’ll be studying in school.  

Office Admin

Working in an office is usually not very glamorous, but there’s a reason why so many college students look for basic administrative work. Office environments can be nuanced and require you to learn certain types of etiquette on top of professional dress and demeanor. By working part-time in an office around your school schedule, you’ll learn things like phone skills, how to operate standard office equipment, basic computer skills (that you might already have, but it’s still nice to reinforce), and you’ll make connections with other professionals who can give you a reference later. Depending on the type of office you’re working in you may have the ability to gain some additional career skills. If your regular tasks are completed it’s likely you’ll get to learn some additional skills that could come in extra useful in the long-run.  

Hospitality or Community Outreach

Anything in outreach or hospitality that exposes you to lots of people in your community is a great opportunity for a college student. Being the happy face of an organization means that you will build great people skills like patience and customer service. In addition, it’ll give you a chance to get to know other people or places you encounter. Did we mention networking? Do you best to network with as many people as possible. You never know when the relationships you’ve made will come in useful across your career and study journey.    

Health Unit Clerk

Helping out in a medical facility or institution is a top job for college students because you can usually land a good rate of pay during hours that fall outside when your classes are. Whether it’s nights, weekends, or after-hours, being an orderly requires you to use empathy and care for people who need help caring for themselves. It’s not for everyone, but if you’re passionate about helping people and want the simplicity of wearing scrubs every day while making about $12/hour, this might be your best bet. Of course, being a health unit clerk is a great first step for anyone looking to further their career in social work or a medical field.  

Bank Teller

Some people actually joke that you should not become a bank teller in college because working at a bank can become so comfortable that you won’t want to leave! With opportunities for advancement, solid pay (about $12/hour), regular hours, and plenty of holidays off, being a bank teller is a pretty good job for a college student. You need to be detailed and good at math along with having the people skills of someone in reception or customer service.  

Tutor

Tutoring is probably one of the best ways to earn money while in school if you have enough experience in one area of study and can help lower level students navigate their coursework. Tutoring is highly flexible and not limited to business hours, plus you can usually do it at school or at a library or home, and it has a higher hourly rate than many other jobs. Tutors can easily make $20–$40/hour depending on the area of study, helping you make extra cash in less time and strengthening your own study skills while you’re at it.   If you’re looking for ways to reduce your student loans for college, consider one of these top jobs for students so you can pay some of your expenses with your income!  

Check Out These Resume Tips from Hiring Managers

  NOTICE: Third Party Web Sites Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.