Once upon a time we all imagined what our adult lives would be like. I thought that I would live in a big city, nice small town home that had a wonderful yard my dog could run around happily in. I would go out to nice dinners with friends, watch all the movies my little heart desired, and I could drop everything and take a trip whenever. Then I grew up and somewhere along the way discovered that life wasn't going to be what I saw in the movies growing up. I quickly learned that there needed to be a balance with work, how much you took home, and the need to indulge in yourself so the "work hard, play hard" mentality could be equally balanced. I've read various articles and researched proper budgeting skills and the following are the two books that helped me find a balance between what I make and what I want to be doing with my spare time.
The first of the novels that I read that helped me discover the areas that I needed to work out to live life on a budget was this awesome witty novel:
What A Life Saver!
This novel answers all the questions we are afraid to ask. My biggest takeaway from this novel is to surround yourself around friends and family who are money forward. Talking about money and finances with your friends, significant others, and family should not be as difficult as we make it. Surrounding yourself with people who are good with money, who are not afraid to talk about it and give advice are going to lead you down a path that allows you to reach your financial goals. Continuing to hang out with friends who do not look at money and spending the way you do will only hurt you financially. If you are trying to save money but your friends want to go out and get drinks, happy hour, vacation in the middle of the month although you've been budgeting so you can take a trip in 3 months, isn't going to help you get where you want to be.
The second novel I devoured this summer on budgeting/ life:
A detailed explanation of all the stuff we're too scared to ask or think about. I have two big takeaways from this novel; however, there is a lot worth reading and taking notes on.
1st BIG Takeaway: DEBT to INCOME RATIO
I finally understand the dreaded DEBT to INCOME RATIO that everyone throws in your face but never bothers to explain. Best part is its a simple math problem that even mathematically illiterate people like myself can complete.
(Monthly debt payments) / (Gross Monthly Income) = DTI (Debt to Income Ratio
The novel also gives us the number that banks are OK with lending out to = 43%. You cannot have more than 43% Debt to Income Ratio in order to receive a loan from a bank. To be safe I recommend no more than 40%.
Numero 2: Pick a Bank that works for YOU!
Chapter 5 goes into depth about the importance of selecting a bank based on what they provide for you, not what you need to provide them. I currently don't bank with anyone with an annual fee, I do not allow over drafting charges, I don't have a monthly fee. But I had no clue about other banking options for your savings. Currently my bank returned to me .15% on my savings account and .20% on my money market. Then I found this novel and have expanded my knowledge on what other banks can offer, especially online banks with minimal overhead. Now I am "shopping" for banks and am excited with all the options out there.
SO.... here is what I learned on how to budget my life according to the know it alls and these user friendly budget novels.
Now I know everyone just gives you notes and never really tells you the truth. But I am going to give you a base income and show you how to properly budget, see what you can get rid of, and how to start taking control of your budget so your bank and lifestyle can find a happy medium.
I follow the 50, 30, 20
and it has changed the way I spend money, but also the way I live life. I hope this will bring some perspective to your life and allow you to realize the moment you start being honest with yourself about your spending is the moment you start making strides towards the life you truly want to be living.
50% is your life. What it costs to be you, to go to work, eat, and any expenses that you cannot go without.
30% is budgeted for your debt. This is credit card debt, school loans, car loan. You catch my drift. Other people/ blogs state that this should be your personal spending: going out, dinners, movies, dates, avocados and guac. I disagree. However, at the end of the day you have to be ok with where your money goes and what you are doing with it. For me, for my budget, paying off my debt is my biggest goal and comes first.
20% is budgeted for savings. Yes I said savings! If you do not make a commitment to save now, this habit will be even harder to acquire as you get older. The time is now, today.
Unlike all the articles and novels I have read, I am going to show you how to budget properly according to an average monthly income where the annual salary is 43,000. After taxes, medical and 401K here is the monthly takeaway:
Budgeting on 3,000 a month
50% = 1,500 Life Expenses
Rent: $810.00 (includes internet, water, electric, and housing.)
Gas: $80.00
Car Insurance: $80.00
Food: >400 My favorite thing to do is eat so I would put more towards that than anything else.
TOTAL: 1,370 (additional 130 can be spent going out or for savings)
30%= 900 Debt
Car= 515 This is the top of a budget for an average monthly car payment.
Credit Cards: 385
20% = 600 Savings
Your breakdown might look a lot different, I recommend writing everything out and analyzing what you can take out. This is a 15th draft of a monthly budget where the take home is 3,000 a month. I've already taken out all the small perks that I would usually enjoy, still attempting to not go shopping regularly, less nights out, more happy hours with friends. My goals with money have changed drastically in the last two years. Before I saw my monthly income as an invitation to be a "baller". Times are changing though and the cost of living is slowly rising. I found a successful way to live a life I enjoy but can also put money away. Hope it helps! If you have any new ideas on how to live on a budget please don't hesitate to comment below. Would love to see what works for other people.