Well, well, well. I haven’t posted an entry in weeks. I had to take a break what with all the craziness of the holidays. I’ve enjoyed my time off, but I’ve been just itching to blog. Meanwhile, I haven’t been taking many pictures. I promise though, I’ll be back this week with food photographs and another giveaway. The giveaway is healthy
I want to talk about a budget though, because I noticed The Happy Herbivore’s assistant has put up a couple of posts about budgeting. This is something I think that most people struggle with. Actually, most folks don’t have a budget. They know what their bills are, they pay them, then they spend the rest of their money on whatever they feel like, and if they’re a little bit responsible, they contribute to some sort of retirement plan.
I was taught from the time I was a child that not only is it important to live below your means, but to also think of retirement money AND a personal savings account as bills that you can’t not pay-like the electric bill or your mortgage, or even student loans. No one can afford to not save for their future, especially US citizens. The future of social security is quite dim.
I’ve always been a huge fan of Elizabeth Warren. No matter what your political views are, and mine probably differ from most of my reader’s, this lady knows quite a bit about money management. I’ve taken a cue from her when it comes to how I manage my money. This is what she recommends as well as what several other financial planners recommend. My mom is the most financially responsible person I know and she lives this way as well, and advocates such a lifestyle.
50% of your income is for necessities. While that should be self-explanatory, it really isn’t. Necessities are what you need to live, things like food, a home, utilities in your home (electricity, gas, water), insurance (health, car, life), prescription medications and essential medical care, a means of transportation, things like that. This portion should include student loan and credit card debt if you have it. You cannot afford to ruin your credit and these things are necessary to pay off. Think about things you cannot function without. I have to stress this. Your cell phone is not a necessity. Neither are the internet or cable. I know, I know. It seems like you cannot function without these things, but you can. Besides, if you have enough money in the next category, just calm down.
30% of your income is for wants. Wants include cell phones, cable, hulu, netflix, the internet, eating out at restaurants, gifts during the holidays, luxury food items, video games, getting your hair done, cosmetics, manicures, entertainment of any kind…anything you do that’s fun or not necessary. This is a fairly large portion of your income in my opinion. If you’re living beyond your means it won’t seem like it is. If you have a penchant for designer clothes, expensive hair styles, manicures, you live by name brand bags, or you adore massages, your style might feel cramped. But if you stick to this budget plan, your life will likely be less stressful. LIVE WITHIN OR BELOW YOUR MEANS!! If your wants are below 30% of your income, add the excess to your personal savings account-referenced below.
10% of your income should go into a personal savings account. These funds should be used to save for vacations and large upcoming expenses. Before you utilize the funds in this account for anything fun, you should build up enough money to cover three months worth of your Necessity expenses. Once you’ve built up enough to cover three months of necessities, the money in this account is for large expenses that were planned or that were unplanned. This ensures that you can make a medical deductible, or a car insurance deductible, or that if you have a major home repair to pay for, you’ll have the funds set aside so that you can afford using a credit card or tapping into the next 10% of your income. I also recommend using this account to save up for down payments or expensive upcoming medical procedures that are planned (such as orthodontia, hearing aid replacement, or lasik eye surgery).
the final 10% of your income should go straight into a long term retirement fund of some kind. You should NEVER touch this income for any reason besides a catastrophic medical emergency or in the case of long term unemployment that puts you at risk of losing your home. This is the only rule that I do not currently follow. I am contributing 18% of my income to a retirement fund because I am able to do so at this time in my life. My necessities only account for about 35% of my take home income. I split the remaining 15% between wants and my retirement fund.
So, that’s today’s post. I know it’s not exciting, or food related, but I have a LOT of friends who don’t manage their money well, or who were never really taught how to manage their money.
Do you have a budget? Share yours with me if you do!