I could spend all day sharing “How to Budget” because I’m fascinated by the topic of managing your money but I’ll be honest with you… creating a budget will NOT work unless you tailor the steps for YOU and YOUR lifestyle. I’ll save you time and let you know there is not a perfect “one size fits all” guide. What works for me may or may not work for you so here we go, let’s talk about $$$ –
WHAT ARE YOUR GOALS?
Do you want to buy a house? Are you the type of person that feels more comfortable with a large amount in your savings? Do you wish to own a Shiba Inu named Emi that is clearly obsessed with getting surgery (I’ll sell her to you)? Do you want to pay off your debt? Whatever it may be, set that goal and stay FOCUSED.
Know your spending habits!
Do you actually know what your monthly expenses are? You wouldn’t believe how many people don’t! Nowadays it’s so hard to track because it’s just so easy to swipe our plastic (or heavy metal) cards or approve your Apple Pay purchase without physically feeling those dollars taken from your wallet. Seeing what you spend will A) give you a heart attack and promise yourself to stop spending that much or B) KEEP you in control. Be aware of your spending habits. Start by organizing your transactions into categories. No “N/A” category here, give every dollar a home (like Marie Kondo would say).
I nerd out when it comes to spreadsheets and organizational apps. I’m obsessed with Dave Ramsey’s EveryDollar tool which is a budget app/website that allows you to organize where your money comes from and goes by category. I like that you can create funds you want to save money for. We created a wedding fund after we got engaged to cash flow our wedding but another example could be a Christmas fund. These are fixed dates, PLAN for them as such. If you want to spend $1,000 on Christmas presents then start saving $90.91 beginning in January so your fund can be complete in November and you can shop without the stress. I know tons of people that use other apps out there that work better for them but EveryDollar has worked for me these past few years. Before this, Mint was my fav.
How do you even make a budget?
Google the sentence, “how to create a budget”. I’m positive all day long you’ll read articles on the 50/30/20 rule. I know I’m not reinventing the wheel, just sharing my success. These are great guidelines of where to start and once you get more comfortable, you’ll find the percentages that work for you. This is how my version of the rule goes: calculate your income after tax and divide it into the following – 50%/30%/20%. 50% goes towards absolute necessities, 30% goes towards your “wants” and 20% goes towards building your wealth.
What are “necessities”?
It depends on who you ask… Ask my fiancé and he’ll tell you nothing is a necessity and everything is a want. BUT truly, necessities contain categories like your mortgage or rent, transportation, all insurance, and I would include minimum balances on credit cards or loans you may have. Think of these categories as the bare minimum you (and your pets) need to survive.
Fun tip – How much of a “house” can you afford? Here is my straight answer. It needs to be less than 25% of your gross income.
What are “wants”?
Everything else is a want. THE FUN CATEGORY! This includes your luxuries – all of your Amazon purchases, all the Wagyu steak your heart desires, new clothes, all the vacations, Spotify subscription, West Elm shipments, new plants…etc. You get it.
What do you mean “building wealth”?
These are your responsible categories. Emergency fund, debt, emergency fund again, then retirement and investments IN THAT ORDER. There are tons of more steps that I didn’t include but this isn’t a “how to get out of debt” post. If you ARE looking for that post, I’ll send over my recommendations. Carrying on, this is what you’ll put 20% towards –
- First things first, build a small emergency fund of $1,000 to protect yourself for the unexpected.
- Pay off your debt… and that means all of it. There is so much more to it, I get it. Over 80% of Americans have debt… insane right? But without writing a book on how to do it… just pay it off.
- If you have no debt, skip step 2 and celebrate!!! It is a huge accomplishment and you should feel proud.
- Build an emergency fund of 3-9 months. I know dollar-wise this could be a huge difference but everyone’s situation is different. The higher the risk of losing your job, the greater the emergency fund.
- NOW you can relax and begin to build your wealth! What to do with your extra money? Increase your retirement contribution if applicable and invest, invest, invest.
When I say “build your wealth” I mean invest in yourself. Grow that money as best you can to invest in the lifestyle you’re working towards in the future.
EVERYONE IS DIFFERENT!
Here is an example. Let me be super vulnerable and tell you what my categories look like, fair?
- My necessities – Mortgage, Utilities, Groceries, Insurance, Doctor visits, Presents
- My wants – Shopping, Home, Beauty, Restaurants, Wine (for real), Entertainment, Travel
- My wealth – Retirement, Investments, Donations
Why is your “presents” category a necessity? I have a lot of family which means it is ALWAYS someone’s birthday so for me it’s a fixed expense that I plan to always spend.
Do you have a separate category for wine? Yes… wine, travel, and restaurants are important to me and my lifestyle so I give them their own category.
Again, this is the budget I’ve created that works for ME.
My advice to you –
It will take some time to get used to and may never be perfect… Life happens. When I began to budget it took me over 3 months to learn my spending habits because “things” always come up. Maybe you’re at a place where necessities take up more than 50% of your budget? Walk through those categories again and figure out what you need to re-adjust. Or maybe you’re doing great and have more than 20% left to spend, throw it towards your wealth! And for those categories you’re having trouble staying within budget, I find it easiest to use cash and when the cash is gone, BYEEEEE (until next month).
In conclusion, give yourself a break! Budgeting is simply a self-awareness tool that allows you to see where your cash flows. DON’T allow yourself to feel guilt! You deserve to take care of yourself with your hard-earned money. And last, DON’T compare your budget to anyone else’s. We all have different priorities.
Let me answer your questions! Comment below –
Its always been a struggle for me to budget and keep a budget. This is the year that I decided to change that and get responsible with my money.
Thanks for sharing girl!
– Ary
I love these! I’m working hard on budgeting and sticking to my budget this year while creating my savings!
Love these!
I love these tips, so clear and simple. And wouldn’t it have been great to have that emergency fund sitting there before the pandemic??? Thanks for the great ideas.
I love that this article isn’t filled with get-rich-quick schemes but real life knowledge of how to spend, save, and invest your money! These are the types of lessons that you learn from your parents and what I enjoy reading. It’s a very refreshing change of pace to the online articles and lists of how to get rich quick 🙂
This post is very Informative!! Really good info and tips that I (most of us) NEED!! BEAUTIFUL BLOG BTW!!
So great to hear! Good luck and send any questions you have my way!
Such a great year to start that! Good luck!
Absolutely! Think of how many would be in a more favorable situation because of planning ahead!
Such great feedback, thanks again for taking the time to read!
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Love this post! Tracking where money goes really is key to budgeting!
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