Remember in grade school, the smart kid with glasses who scored high marks in everything but gym class? Well, that guy or girl is now dominating their life! Today, I hope to help you find a similar path. Budgeting isn’t just for money in today’s hectic life. Time is far more finite than the dollars we earn day in and day out. However, managing your time is infinitely more difficult than money so this post is geared toward dollars and cents.
I’ll save you the details of how I got into budgeting, but suffice it to say, it was because I made way less money than I thought I would out of college. I was fortunate to have a great family that helped me through the first few years with cheap rent and nightly dinners. To my brother and sister-in-law, thank you for your generosity, kindness and financial support. The experience of relying on family when I was officially an adult put me on the track to find financial responsibility. I am by no means where I want to be, but I’m getting there day by day. If you’re ready to take your first step to finding a better way to manage your money, read on!
My first recommendation is to track your spending. With mobile payment options, credit/debit cards and cash, keeping track is a full-time job. I used to log into each bank separately every week and review purchases, payments, etc. This literally would take me hours to sort through, but in 2010 I discovered Mint. Mint is an online money management site that aggregates all of your financial accounts into a single pane. On the homepage you can see what bills are coming due, balances in accounts and even your investment accounts if you choose to add them. This made seeing all of my purchases for the week, no matter what payment method I used, easy to see and find without spending hours logging into all of my accounts!
After a month or more of tracking spending, you should have an idea of how much you spend each week. You should be able to sort those purchases into 1 of 3 categories, Wants/Needs/Savings. The purpose of doing this is to allocate the following percentages to your after tax income: 50% to Needs, 30% to Wants and 20% to Savings/Debt repayment. Note that minimum debt repayment is included in your needs, any additional payment to principal balance is considered savings. There is a balance to be found here, as putting all your resources to paying down debt without savings creates a risk for needing to take on more debt in an emergency.
Here’s an example of someone making $2500 a month: Needs would equate to $1250, rent, groceries, insurance, minimum debt repayment and any other needs. Wants would be $750, cable TV, gym membership, dining out, basically anything they can live without. Savings/debt repayment comes in at $500, emergency savings, IRA, brokerage funding, credit card bills, school loan, car loan, any money spent that puts more money in their pocket over the long term. The numbers 50/30/20 aren’t hard and fast, as many folks starting out on their own will quickly learn. Often times they’ll find that Needs exceed 50% and they have less than 20% leaving them with less than 5% for wants and even less for savings. Don’t worry, the plan is merely a guideline to get you thinking about your finances. Time is on your side if you’re young and just getting started on your own. If you’re over 50 and struggling to meet the guidelines, you need to re-evaluate wants vs. needs. No judgement here, just a piece of advice.
Budgeting money can be a real challenge for many folks. Keeping up with friends and family members can quickly drain our bank accounts! If you approach your budget with a plan and goals in mind, success will follow close behind.
“We buy things we don’t need with money we don’t have to impress people we don’t like.”― Dave Ramsey
I’m always happy to talk budgets, cash flow, etc. If you have any in-sight you want to share I’d love to hear it. Comment below and lets talk.