Good morning, Dear Reader. As we close out January, I wanted to follow up on our discussion on Bad Money Habits. If you remember, we are talking about “things we should let go of in 2022,” and Bad Money Habits made this list. I’ve already set the stage with this blog post and this one, too, so today, we close with a word about budgets.
Here’s the deal with budgets: They only work if your income matches or exceeds your expenses. So – you will either have to lower your costs, increase your income, or do both. For example, I make a pretty decent wage and can pay all my bills on my income from my full-time job. But even I will admit that if I wanted to increase my 401(K), pay off my debt early, or live a more lavish lifestyle, I’d need a side hustle. My side hustle in 2021 brought in about $7,000, and I used that to travel more and get my credit score in good shape. Now and then, I think of picking up a side hustle back in massage therapy just to move the needle in getting my car paid off early. Again, you do you. If reducing streaming services and reducing the number of meals eaten out gets you where you need to go, then great.
So today, I will share with you my experiences with budgets, finish up the series, and then send you off into the world to fend for yourself. I’m moving on to another topic on the list starting in February.
Grab a drink. Settle in. Let’s talk budgets. Here are my three favorite systems:
1) The Minimalist Budget. This budget type, also known as the 50/20/30 budget, is one of the easiest if you like things to be simple. 50% of your income is used on “Essentials”, 20% is for “Savings” and 30% is for “Personal Spending”. I modified mine a bit when using this because food is, technically, ‘essential’ but I moved that into my ‘personal spending’ category instead. I don’t really know why I decided to do that; I just did. So mine was more like a 40/20/40 budget, but you get it. You can read more about the Minimalist Budget system here if you are really interested.
2) Simple Budget. This budget is probably the one we are all most familiar with. It’s where we put things into categories and then spend accordingly from the budget. It can get really granular if you let it – think narrowing your categories down to ‘sub levels’ – instead of just “Housing”, you decide to also set up categories fo ‘utilities’ and ‘maintenance’, etc., etc. Again, you do you, but that took too much time out of my month to reconcile my budget and drove me crazy. Now I have six categories: Housing, Auto, Debt, Emergency Fund, Short Term Savings, Personal Spending. (I lump all streaming services into housing because, well, I can.) Read more about a simple budget here.
3) Zero-Based Budget. This is most common in the business world but you can use it, too. It’s just as it sounds. If you bring in $2000 a month, you spend $2000 a month. The concept around this is that you don’t deprive yourself of the things you need for the sake of hoarding money. You break your budget into categories using either of the two methods above (or even one more complicated) – but you spend everything in every category (except savings, of course) by the end of the month (hence ‘zero’) where you start over again the next month. Pretty snazzy concept, especially if you want that new perfume, right? Read more about ZBBs here.
So, what do I use? A combination of all three. First, my savings equal 20%, but I break that into Long Term savings (retirement and a down payment on a house), Short Term savings (travel, car maintenance, new TV), and Emergency Savings. Yes – even though I have an emergency account of that recommended $1000, I still put 2% of my take-home pay into that fund each month because I’m trying to build up 3-6 months of living expenses just in case something goes terribly awry (This is put into a mutual fund. Some days are good. Some days are not. Lately, not so much. Anyway!) My long-term savings is pre-tax and taken right out of my paycheck (with a match from my employer, btw). So that’s even better. Also, if I get a bonus or ‘found’ money I use that for fun. Period. Pure, unadulterated fun. Life is too short, kids. #YOLO. Except for child support. My child support is actually his college fund. So, hopefully, you can get to the point you are not actually dependent on this to pay your day-to-day bills. My child support, if it ever actually shows up, goes directly into a custodial investment account. That way no one can ever say I spent it on manicures.
Next, I should mention a bit about that zero-based budget thing. If you have money left in your categories at the end of the month, the idea is that you spend it – preferably in that category. Example: You have $10 left in your ‘housing’ category. Reduce your housing debt by making an additional payment of $10. I, however, do it a tad bit differently (have you caught on that I don’t like to follow someone else’s rules 100% of the time? It’s why I can never complete #75Hard. I hate rules.) Anyway, here’s what I do: I pool all the money I have left in each category into one place. I use 50% to reduce debt. I use the other 50% for fun. You gotta have some fun, kids. Ain’t even gonna lie: I’m a sucker for day spas, good wine, and road trips. I sometimes will buy ‘things’ but as a minimalist, I really like experiences more. This is why I don’t buy a lot of clothes and shit. I could buy a big-ass TV…but frankly, I sit on my ass all day. I don’t need another reason to continue that after 5 pm.
One thing I also recommend: Bank at a Credit Union. At most CUs, you can make sub-accounts for all these categories (and even name them! How fun!). My paycheck is direct-deposited into my main account. I’ve set up auto-transfers the day after each pay period, and POOF! – money is magically dispersed in the categories. I pay my bills out of my checking or with my credit card and then transfer the funds from the category to cover the expenses. That’s also beneficial because it forces me to look at my accounts daily to make sure some imaginary man didn’t spend it on a new guitar or porn without my knowledge. (Nothing at all against guitars…or porn, for that matter…I just like to be the one to buy them, you know?)
So, there you have it, kids. I’m happy to sit down with you and help you sort this out if you are local. I’ll pretty much do anything for a free cup of coffee. If you are not local – check with your local credit union to see if they have someone fancy there, like a financial wellness specialist, who can help you.
Even though there is nothing earth-shattering today, I want to leave you with this song I dug up from the vault. Has absolutely zero to do with today’s post, but it reminds me of Webster County summers where’d I’d play this on repeat FROM MY CASSETTE DECK as I cruised through Sonic for my Diet Cherry Limeaid. If you don’t know what that is – I’m sad for you. Very, very sad.