Welcome back to The Mindful Guide! It took me some time to get back into the swing of things, but I just thank God that He gave me the opportunity to write again. I want to start this year by introducing you the tools I’ve learned in the last two years about managing my finances. The first tool is about budgeting. How to set it up, how to keep track of it, and ultimately, how to manage it.
But first, let me tell you a little bit about where I’m coming from. I started my first budget when I came out of college. I had just graduated and wanted to make sure I kept track of my expenses because this was my first full-time job. I didn’t know where to begin or what that would look like, so I just went for it. I opened Excel and started playing to eventually learn the following things:
1) Use Actual Numbers
I started my budget with estimates from how much I thought I would make, how much I would spend, and how much I could save. On my expenses, I decided to use a very popular breakdown that is known as the 50/30/20. It states that up to 50% of my income goes to needs like rent, utilities, and groceries, 30% goes to the things I want like trips, shopping, and hobbies, and 20% goes to my savings. I didn’t have any data to back up my breakdown, so I just made an estimate and started filling out real expenses as they came through.
When I say, “actual numbers”, I mean numbers that come from official documents like your W-2, your utility bill, or a bank statement. Use your W-2 to set up your actual pre- and post-tax income, and use bills and bank statements to see the actual cost for the needs and wants you have.
2) Set Up Relevant Categories
This was a hard one at first because I really didn’t know what to name the categories where my money was going towards. “Did I name too many or too few?”, were my first thoughts as I continued to set up my budget. I decided to use 8 categories. My first two were “Home” for permanent purchases like furniture or clothing, and “Fixed” to account for the 50% of my expenses that were going to needs. The other six are pretty straight forward, they were “Fuel”, Travel”, “Groceries”, “Restaurant”, “Restaurant (At Work)”, and “Entertainment”. The reason I created two categories for eating out was because I wanted to track how much I spent eating out while at work.
Just like I decided to create a category to track a specialty item, you may want to do the same and see how much you are spending. You may want to create a “Hobby” category to see how much you spend on fishing gear, or a “Clothing” category to see how much you’re spending at the mall. No matter what you choose, look for categories that are meaningful to your daily life.
3) Keep Savings in Mind
I know everybody talks about the importance of saving. And I agree with it, don’t get me wrong, but you have to be conscious about it. Don’t save to save, save with a plan. If you want to use the breakdown as a reference, try to save 20%. If you can try to save more, maybe try to go for 30%.
When it comes to saving with a plan you need to keep one thing in mind. What is your end goal? Are you trying to reduce your debt, are you trying to build an emergency fund, or are you trying to invest? Look at your situation and make sure you have a way to establish a plan. If you are trying to reduce your debt, make sure you are increasing the size of your payments each month by taking one debt at a time. There are different strategies and I will share them with you.
I will go over these topics in more detail as we move along with the series. I’m happy to be back and to share this series with you. I’m working on a user-friendly version of my budget so that I can share it with you soon. If you have any questions or would like to know more about this, please reach out to me.