Your credit card company called and wanted me to let you know that they approve of your spending habits, probably because total US consumer debt hit levels of $14 trillion in Q1 of 2019. While it’s true that a portion of this number involves mortgage and student loans, it’s clear that we have a spending problem. I’m not immune to it either. If I’m 100% honest with you, I’ve financed trips on 0% credit cards, essentially with the mindset of “I’ll pay it off later, no worries.”
It’s been an amazing 7 years. I’ve traveled to Mexico, Peru, Chile, Bolivia, Croatia, Slovenia, Hungary, Austria, Uganda, and the list goes on. I’ve been fortunate enough to experience some of the most incredible destinations in the world. I am incredibly thankful to have the opportunity to travel. But I’m coming to a new crossroad in my life. I wanted to let everyone know that I’m… starting to follow a budget.
Pretty anti-climatic huh?
The truth is, I’ll always travel, but it’s time to be more intentional with how I spend my money. A budget was always one of those things that I knew I should follow, just never had the discipline to do it. I remember when I was a senior in college, just weeks from graduating, selling textbooks for some beer money. It was an exciting time in my life, but I was broke. The whole idea of a budget seemed contracting.
At this point in my life, a budget feels empowering. I plan on sharing a few tips on how you can achieve your lifestyle goals, by living with a budget.
#1 – Set a Budget
Putting all politics aside, Senator Elizabeth Warren created a 50/30/20 rule for budgets. I find this helpful when visualizing how your expenses will be allocated. To simplify things, we will use after-tax income, or take-home pay. The basic principle is 50% of your income should be allocated towards “Needs,” such as rent, utilities, car payments and groceries. The 30% will go to “Wants,” such as entertainment, hobbies, travel, etc. The last 20% should go to Savings/ Debt Paydown.
Main Take-Away: Allocate 30% of your income for rent/mortgage. Next, focus on keeping your car expenses within 10% of your take-home pay. If you’ve accomplished these two things, you’re off to a great start!
#2 – Set up an account on Mint or Personal Capital
I am not affiliated with either of these websites. You can track your income and expenses automatically, by linking your financial accounts to this website. After you have created your budget, you can then add this budget and these websites will help you track it. I find it really helpful for visualization purposes, because you can clearly see where your money is being spent.
#3 – Track your spending
This tip goes hand in hand with #2. It’s one thing to make a budget, but if you don’t analyze it, it’s worthless. Figure out where all your money goes! I’ve found that my weakness is eating out at restaurants. Dining out is the quickest way to break your budget. I’m not saying you can’t have fun, but that $5 daily Starbucks or breakfast burrito really adds up.
#4 – Adjust your budget
After analyzing your spending habits, it may be helpful to adjust each category realistically. The main goal is that you are spending less than your take-home pay. This is where the excel template comes in handy when it comes to adjusting amounts for certain categories.
#5 – Have fun with it
Budgets shouldn’t feel burden-some. It should feel exciting knowing that you are taking charge of an important aspect of life. In my budget, I’ve added an “Extravagance Fund,” where I will spend 3% on something that may seem extravagant. It can be a nice dinner, new shoes, whatever you want. BUT, this account doesn’t roll over, you have to spend it every month. The idea behind this is to energize the budget with some enthusiasm and positivity.
It’s not what you make, it’s what you keep. That’s why sticking to a budget is so important.
Stay tuned for future posts about starting a travel fund.
Live with Intent.
Disclaimer: I am not a financial advisor and I recommend you consult with a financial professional before making any serious financial decisions.