I know that title sounds like click bait but just continue reading and you’ll realize it’s not. You’ll learn you can create a budget and customize it to allow you to spend on whatever you want AND save money.
We'll go over the steps to make a budget and then work to personalize it for you.
Creating Your Budgeting
Before you start to make a budget, try and figure out what your financial goals are. Mine were, and are, being able to aggressively pay off loan debt, save money, and still travel. I wanted to do all that but not feel like my life was compromised. If you want to see my actual budgets you can here.
Part One: What Is Your Net Income?
Your net income refers to the money you actually get per month. Your gross income refers to the total amount before all your pre tax deductions, taxes, Medicare, etc. are taken out. For this we only care about the money you have access to every month.
Part Two: Determine Your Total Expenses.
This will be broken up into fixed and variable costs. Fixed costs refer to the expenses you have every month that are going to stay the same price, such as, your rent/mortgage, car insurance, gym membership, Netflix, etc. Variable costs are things that can change every month. This would be your food, gas, or entertainment. Everything you spend should be accounted for.
Part Three: Subtract Expenses To Equal Zero.
Your income minus your expenses should equal zero. If you have money remaining, that is awesome! You can already begin to save or pay extra toward loan debt, if you have any. If you are over, you will NEED to start to find places you can begin to cut.
Part Four: Be Conscious Of Your Spending.
This could be tracking your spending to see how much is going out. There are apps for this, I hear Mint or Personal Capital are great. I personal don’t track my spending, I don’t have that level of dedication. I simply know a rough estimate of how much I can spend each week and try to stay under that. It is almost a game at this point. I don’t always succeed but I do more often than not and that is all I can really hope for.
If you need help creating a budget you can use either of the following excel spreadsheets. The simple is just that, it is super easy. If you are interested in your percentage breakdown, or want to plan for different things every month, like holidays or birthdays, you can use the changing budget.
Customizing Your Budget
Now that we have a rough outline of a budget let’s begin to personalize it so you can stick with it!
Part One: Evaluate Your Spending?
You have now allocated all your money and can see where it is going. Earlier I asked you to determine what you were creating a budget for and now I want you to think about what is important to you? Does the spending in the budget you just created match what is important to you or your goals?
Part Two: Stop Spending On Things That Don’t Matter.
If you saw that you spent $150 ($5 per day) on coffee in the past month but waking up and going to your local coffee shop or Dunkin’ makes you happy, then keep doing it. If you realize it doesn’t really matter but is just a convenience thing, suck it up and make it at home and save that money.
If you like fine dining but don’t care about what car you drive, don’t have a car payment. Maybe you like the social aspect of getting lunch with coworkers or going to happy hour but you don’t really care about shopping for the latest clothes. You get the point. Choose the things you don’t care about and reduce your spending there.
These are the areas that can make a big difference. If you don't really care about going out for lunch but do it because you are a bum, stop being lazy! If an average lunch is $10 and you eat out 5 times a week for 4 weeks, that is $200 a month, or $2400 a year. That's a lot of money you could use elsewhere!
Part Three: Spend On What You Care About.
If you want to be successful, spend on the things that make you happy and not on the things you don't care about.
For right now, the car I drive or where I live aren’t a priority. I drive a 10 year old Toyota Camry with 120k miles and plan to drive it to 200k. I like not having a car payment and want to use the money in other ways. I went from living with Craigslist randos for 5 consecutive years to living in a 500 sq ft apartment, but never spent more than $450 a month on rent, and am currently living for free. See how by checking out my first deal.
Clearly I love to travel and I make that a priority. 2019 will be the third consecutive year I take an international backpacking trip when I go to Asia for a month. But my flight to Asia will be free through travel hacking. Those trips aren’t always cheap and I am okay with that because I cut back in other areas. I spend on what I care about!
Part Four: Enjoy The Benefits!
Here is the fun part! Now that you have identified your goals, what is important, and have cut the expenses that do not matter, let’s spend that money!
Let’s say you cut $100 per month, you can pretty much fly anywhere in the world for $1,200.
Maybe you hate travel but want to pay off your mortgage early. Paying an extra $100 a month on a 120k mortgage at 4.5% interest will save you $27,944 in interest payments and reduce your payments by 7.5 years.
Imagine if you cut $200 a month and put that into a Roth IRA for additional retirement. $200 a month at an average market return of 8% per year would give you $293,630.08 in 30 years.
This is the time to put that money where you want!
Looking back, yeah it sucked living with random people from Craigslist when I could have afforded to live alone. But, I would have done the same thing because within 5 years from starting my career I will have paid off 90k in loans (that interest will get you), completed 3 international back packing trips, lived in Brooklyn, New York for a summer, and have 5 rental units and a single family for myself (coming in the fall of 2019). To me, those memories and accomplishments will bring me more joy and satisfaction than going out to lunch everyday.
If you want to see my actual budgets you can here or need help working on yours, please reach out!
HELLO AND WELCOME!
I'm Jake, a dude interested in personal finance and travel creating the life I choose.
In 5 years I went from living in a basement with Craigslist roommates to paying off 90k of debt, backpacking 3 continents, getting a house for myself and 5 rental units.
Read my story in the about me section.
All photos on the blog are from my travels
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