Unless you’re born into money, society has taught us as adult that the name of the game is spending within your budget. However the hardest part is figuring out how to set your finances to allow you to use just 60% vs. the full amount. Below are the committed expenses that is unavoidable; if the 40% is unrealistic, then you can raise it to 70%-80% to better fit your lifestyle.
- Basic food and clothing needs.
- Essential household expenses.
- Insurance premiums.
- Charitable contributions.
- All of our bills — even such nonessentials as our satellite TV service.
- All of our taxes.
So now depending on if you chose 60% as your median, there are 4 sections that you can use disperse your savings.
401 K – This can/should be automatically pulled out. Remember that this is your retirement savings plan so unless it’s an emergency, don’t pull the money out early (i.e. before 59 ½). Most companies does offer a matching program from at least 1%-5% with some matching at a higher percentage.
IRA/Roth IRA/Mutual Funds – Like our SSN funds, it’s hard to just rely on one asset when you retire. Setting another form of investment that gains decent interest in the next 20-30 years can essentially give you the better than average lifestyle. If you are not an expert at managing any of the 3, then I would recommend seeking a professional through your bank, or financial experts from a well known organization in your area.
Emergency/Vacation Plan – While saving for the long term is very important, don’t forget that things around your house may need repairs or replacement. Going on vacation is also a great way to save your sanity. All work and no play makes for a very long year, and treating yourself and your loved ones is a good way to strengthen your bonds. Just have this pulled directly to another account from your check so you don’t see it until the monthly balance after 30-90 days.
Spending Money – The great part about this last one is you can spend it on anything as long as it doesn’t go past the 10% you set (depending on the amount you are setting this can vary).
Now if you’re asking yourself the question “Well I can’t just put away 40% of my check, we won’t be able to survive.” Below are potentially some factors that may hold you back:
- You have a more expensive home than you can afford.
- You’ve committed to car or boat payments that are larger than you can afford.
- Your children are in a private school that you can’t really afford.
- There’s just a big, ugly gap between your income and your lifestyle.
My recommendation is to try it at 70%-80% (Giving yourself 20%30 savings money to start) at first until you are able to lower your expenses. It may not seem easy at first, but by making the necessary adjustments it will pay off in the long run. Making the necessary adjustments will allow you to put a cap on your unnecessary expenses.
The real secret to building a budget that works isn’t tracking what you spend, but creating a sustainable structure for your finances. Balancing your spending and income and that leaves enough room to handle the unexpected things that life throws our way.
- How To Manage Money (nationaldebtrelief.com)
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- Money Management for the Happy Couple (thehopefulromantic.net)
- 3 Easy Ways To Stay Away From Debt (50plusfinance.com)
- Retire before 40? Some folks say it can be done (usatoday.com)
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- How To Improve Your Finances (nationaldebtrelief.com)
- Our expert (finally) reveals his retirement strategy (money.cnn.com)
- AMP to merge KiwiSaver schemes (nzherald.co.nz)