Arguably one of the most expensive times of year is wrapping up and some of our bank accounts are a little worse for wear. Don’t worry; together we’ll get back on track, starting with basics.
For this exercise we want to use monthly Net Income (our after tax amount). If each month your income changes calculate on average your pay (add six months together then divide by six).
Now there are two categories we spend money on: wants and needs. Ideally financial experts recommend breaking down your income into the following categories:
- Groceries (different than dining out),
- Eating out,
- Gym Membership / Exercise classes,
Savings / Debt Repayment (20%):
Savings will include: building a six month cushion in case of emergency, retirement, house down payment, trips, etc. Personally, I’m learning now how incredibly thankful I am to of saved at least six months worth of living expenses to cover me while I’m transition jobs. Stashing away money will help ease stress during potentially difficult times.
Debt repayment should always become a top priority. Evaluate debts with highest interest rates to pay those off first, then move on to the next highest.
Another breakdown for the last 20% is:
Savings (10%) & Charity (10%) OR Savings (15%) & Charity (5%)
Finance guru Kevin O’Leary wrote an article on LinkedIn touching upon a donation method used by him and his wife they call “Five for Five”. Together they select five charities to donate to for five years. Once those years are up they evaluate and repeat their five for five method. Loved this idea!
Thanks to technology there are lots of free apps to track your spending. Taking under a minute to record, these apps have helped me see where my money goes, especially when I’ve spent too much disposable income.
- Spend less each month than your income
- If you have extra money left over put it toward debt or savings
- These are recommended guidelines, life happens, and budgets will needed to get adjusted every so often
Would love to hear if you’re enjoying these posts or want to read anything else.
Have a great day!
See you back tomorrow,