SHORTS: Budgeting Basics Part 2 - Setting Up The Budget

12/15/21 • 4 min

Now that you understand where your money is going, we want to take the next step and manage that money.

We manage our money by budgeting for the next month on the calendar. If you're listening when this goes live, that is January.

Looking at your past spending, you then need to make decisions, based on the categories you've created, on what you want to continue forward with.

So how do we know if we're spending too much on a category? A well known guideline for spending is the 50/30/20 budget.

You allocate 50% of your income toward living expenses and necessities, 30% toward wants, and 20% toward debt and savings.

If we want to get more granular, here are a few more guidelines

Housing: 25-30%
Food: 10-15%
Insurance, such as life, medical, home or auto: 10-25%
Transportation or auto services: 10-15%
Savings: 15-20%
Entertainment and leisure: 5-10%
Health: 5-10%
Clothing: 5%
Personal expenses: 5-10%

Once you've established your categories, it's about regularly reviewing them. Each month you'll set a new budget and should reflect on the prior month.

At first, you will do really poorly. But over time you adjust and learn better what your spending is.

Remember, we budget to know what we're spending and be intentional with it. NOT to control. This mindset shift will change the way you approach it.

Good budgeting!

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Now that you understand where your money is going, we want to take the next step and manage that money.

We manage our money by budgeting for the next month on the calendar. If you're listening when this goes live, that is January.

Looking at your past spending, you then need to make decisions, based on the categories you've created, on what you want to continue forward with.

So how do we know if we're spending too much on a category? A well known guideline for spending is the 50/30/20 budget.

You allocate 50% of your income toward living expenses and necessities, 30% toward wants, and 20% toward debt and savings.

If we want to get more granular, here are a few more guidelines

Housing: 25-30%
Food: 10-15%
Insurance, such as life, medical, home or auto: 10-25%
Transportation or auto services: 10-15%
Savings: 15-20%
Entertainment and leisure: 5-10%
Health: 5-10%
Clothing: 5%
Personal expenses: 5-10%

Once you've established your categories, it's about regularly reviewing them. Each month you'll set a new budget and should reflect on the prior month.

At first, you will do really poorly. But over time you adjust and learn better what your spending is.

Remember, we budget to know what we're spending and be intentional with it. NOT to control. This mindset shift will change the way you approach it.

Good budgeting!

Follow me on Twitter

Subscribe to my email newsletter

Advertising Inquiries: https://redcircle.com/brands

Previous Episode

BONUS: Understanding Inflation with AdultingIsEasy, MainStMoney, RoadToWealthPod, & IAmCoachClint (A Twitter Spaces)

This special episode was recorded on Twitter Spaces on 12/2/2021.

Follow everyone on Twitter:

@KurtisHanni

@AdultingisEasy (Lauren)

@MainStMoney (Alex)

@roadtowealthpod (Justin)

@IAmCoachClint (Clint)

w/ guest @AccentInvesting (Kenny)

Join us on Twitter Saturday, December 11th at 9:30am EST and Thursday, December 16th at 8:30pm EST.

Advertising Inquiries: https://redcircle.com/brands

Next Episode

SHORTS: How much should my emergency fund be?

What is an emergency fund?

An emergency fund is a stash of money set aside to cover the financial surprises life throws your way. These unexpected events can be stressful and costly.

Here are some of the top emergencies people face:

Job loss
Medical or dental emergency
Unexpected home repairs
Car troubles
Unplanned travel expenses

By setting up an emergency fund, you help protect you and your family from unexpected expenses.

So how much should you have in an emergency fund?

The general suggestion is to have 3-6 months of expenses set aside for emergencies. This will cover you in the case of job loss and allow you to look and find a new job, or at minimum find an alternative so you aren't out on the street.

To calculate how much you need, it's common to remove expenses you wouldn't incur in a true emergency. This would be general spending, eating out, vacation, and savings goals. It's your discretion exactly what you do, but these are general guidelines.

So, in what situations would you need more or less of an emergency fund?

You need more if:

During a recession (when unemployment rates are higher and the length of unemployment is often longer).
If you're in a high-risk industry where layoffs are common.
If your income isn't steady.
If you're retired (and most of your money is in more-volatile stock and bond investments).

You need less if:

You have multiple streams of income
You could get a job quickly
You aren't living off both incomes

No matter your situation, it's my opinion that 3 months is the lowest amount you should ever hold.

Where do I keep it?

We want this money to be liquid. It should be in a high yield savings account and not in the stock market or crypto investments.

If you keep it in those, it's likely to be down when you need it. That risk is not worth it.

But, that's also why you shouldn't keep too much. High yield accounts, in today's environment, only return around 1%. If you want a year's worth of emergency fund, my opinion is that you keep 6 months in high yield account and the rest in the market. Just a personal opinion.

If you can't get to 3-6 months, anything is better than nothing!

If you don't have an emergency fund, it's imperative that you get one. Sell things from your house to make it happen. Make the sacrifice today and the investment in your future.

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