7 Ways to Master Budgeting and Spending
Financial Foundations
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Financial Foundations •
Empowering Our Financial Wellness: Mastering Budgeting and Spending
Recipe: Financial Foundations: Budgeting and Money Management
In our journeys toward financial fitness, it's essential to grasp budgeting and money management. These aren't just buzzwords; they're practical tools we can understand and implement in our own ways to help steer us toward greater awareness and financial freedom.
As we always say, building wealth doesn’t have to be complicated – it's all about having the right ingredients for a simple wealth recipe. Let’s break it down into some simple, actionable steps to manage our money in smart ways.
1. Understanding Budgeting: Our Financial Compass
Budgeting is like creating a map for our financial journey. It involves understanding our total monthly income and categorizing our expenses – both fixed (like rent or mortgages) and variable (like groceries or entertainment). This is the first step in our collective empowerment in money management. Most people think it’s about restrictions, but it’s actually about awareness — and the liberation that comes with it.
2. Simplifying Our Spending: The 50/30/20 Budget
A great starting point for budgeting is the 50/30/20 rule, and is a straightforward yet effective method for managing our finances. Allocate 50% of our income to needs, 30% to wants, and 20% to savings. This rule isn't set in stone but serves as a guideline to balance necessities, pleasures, and future financial security.
50% Needs: Half of our income goes towards necessities—bills and expenses that are essential for living and working.
30% Wants: About 30% can be allocated to wants. This includes dining out, hobbies, and entertainment – the enjoyable part of our budget.
20% Savings: The remaining 20% is for savings or paying off debts, like building an emergency fund or contributing to retirement accounts.
This approach helps us make balanced financial decisions and provides a clear framework for budgeting while allowing personal adjustments.
3. Tracking and Managing Expenses: Knowledge is Our Power
Knowledge is power, especially when it comes to expenses. Using tools or apps to track our spending and regularly reviewing where our money goes can be eye-opening and is key to staying on budget. Small daily expenses, like that extra coffee, can add up, so we like to keep an eye on them.
Some tools that have helped us track our expenses and make necessary adjustments, acting as a financial GPS guiding us towards our goals, include:
- Mint: Offers a comprehensive view of our budget, bills, and credit score.
- YNAB (You Need A Budget): Great for proactive budget management, giving every dollar a job.
- PocketGuard: Simplifies our budget to an easily understandable 'pocket' amount.
4. Living Within Means: Our Key to Sustainable Wealth
Living within our means doesn’t mean cutting out all fun. It's about understanding our financial limits and making informed decisions. It's okay to treat ourselves, but balance is key. This balance ensures that we’re not sacrificing long-term goals for short-term pleasures. This may mean having our favorite coffee but foregoing the extra muffin or stop at the fast food spot for lunch. This way, we can know we have some money to stash for our Jamaica trip next summer.
5. Budget Flexibility: Adapting to Life’s Changes
Our budget isn’t set in stone. Life changes, and so should your budget. Regularly review and adjust it. Maybe we got a raise (yay!) or have a new monthly subscription – our budget needs to reflect these changes. With an interactive budget tool like the BloomWell 50/30/20 Budget Tool, we can easily add these in as things change, and the budget tool will do all the adding, subtracting, and percentages for us.
6. Emergency Funds: Our Safety Net
As we always emphasize, an emergency fund is crucial. It’s the buffer that keeps us afloat during unexpected times without derailing our financial goals. Aim for 3-6 months of expenses, and remember, this fund is for emergencies only. It provides peace of mind and stability.
7. Goal Setting: Visualizing Our Financial Future
Setting specific financial goals, whether it’s saving for a vacation, buying a home, or preparing for retirement, make the budgeting process meaningful and rewarding is important. Having a list, a vision board, a picture on the fridge, or some type of reminder, can help us remember what we’re working so hard for.
Realizing Potential: Ray's Journey with the 50/30/20 Rule
Let's meet Ray, an ambitious professional who enjoys drinks after work, going to the gym, buying sneakers, and catching a basketball game occasionally.
Ray works full-time and pulls in about $70,000 a year (about $33/hour). After hours, he's a delivery driver, adding about $1,000 to his monthly earnings.
Despite this, Ray often found himself scratching his head at the end of the month, wondering where all his money went. Savings? Here and there when he remembered. Leisure? Whenever he felt like it.
He’s making good money and, like many people, knew he was making enough money to cover bills and a few pleasures, and didn’t sweat the rest or give much intentional thought to savings and investing.
Ray's breakthrough came when he stumbled on the 50/30/20 budgeting rule during a casual conversation with a friend. It was an "aha" moment for him, and he decided to give it a shot.
He calculated his combined income, both his full-time job and side hustle, which is about $6,830.
He then divided his monthly earnings using 50/30/20:
Needs: With 50% of his income allocated to needs, Ray dedicates $3,415 each month to essential expenses like housing, utilities, and groceries ($6830 x 50%).
Wants: Then, 30% goes towards wants, giving Ray $2,050 for leisure activities, hobbies, and dining out — adding enjoyment to his life (6850 x 30%).
Savings: Lastly, he puts 20% into savings, which amounts to $1,365 per month, paving the way for a robust emergency fund and investment in his future (6850 x 20%).
By applying the 50/30/20 rule, Ray has not only structured his financial life but also empowered himself with the foresight to save and enjoy the fruits of his hard work. He also does not have to spend a ton of time in calculations and spreadsheets each month.
Ray admits, the first month felt like a financial detox. He realized that his 'wants' included quite a few impulse purchases that he could do without — a couple of extra fast food purchases and a few online purchases.
As months passed, the 50/30/20 budget rule became second nature. Ray discovered he didn't just have "some" money left over; he had a substantial amount to save and still indulge in well-deserved pleasures—like his basketball games, nice dinners, or sneakers he'd been eyeing. And, he didn’t have to feel guilty because he knew that he was living within his means and had money set aside for his future self, and to enjoy right now.
Ray's story isn't just about saving money; it's about discovering financial clarity and empowerment. By adopting the 50/30/20 budget, Ray transformed his income into a powerful tool for achieving his financial goals.
Now, he's not just working for his money; his money is working for him, paving a path to a future filled with possibilities.
Taking Tiny Action Today: A small step toward awareness
Awareness can start with the smallest step. Finding a good budgeting tool and inputting numbers to see how much we are currently spending on needs, wants and savings, is a great first step. Then, when we’re ready, we can start to make adjustments towards an even healthier financial life.
Embracing Our Unique Financial Journey
Budgeting and managing expenses aren’t just about numbers; it’s about setting the stage for a financially secure and fulfilling life. It’s about making informed choices today for a prosperous tomorrow. So, start today, adjust as we go, and remember, each step we take is a step towards greater financial fitness.
Our paths to building wealth are unique, but there are certain foundational things we can do along the way to accelerate wealth building and financial wellness. It doesn’t have to be complicated – with the right mix of dedication and smart money habits, we’re well on our way to a life of our dreams.
To start instantly using our interactive 50/30/20 budget tool each month, click here.
Just add your current income and expenses and the tool automatically calculates and does the rest.
Building wealth doesn’t have to be
complicated or confusing,
you just need the right mix of ingredients
for a simple wealth recipe
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