Your Guide to Budgeting
Alysse Godino, Saffron Money Creator , Cornell University alum, and former investment banker. One year ago, Alysse moved to Maui to take a break from the Wall Street world. There she discovered a lack of financial education and literacy, especially within women, and decided to do something about it. Now, when she’s not surfing or skating, she is working one-on-one with clients all over the country to provide financial education and empower women to take control of their finances and make great financial decisions.
Budgeting for Your Financial Needs
Let’s be real. Hearing the word “budget” is about as thrilling as waiting in line at the post office or getting a root canal. Also contributing to the negative connotation is that most people loathe the idea of feeling any sort of restriction when it comes to their spending… or anything really. It’s like the day you decide to start eating healthy, all you can think about is the chicken parm and doughnut from the sandwich shop down the street.
Here’s the scoop on budgeting. Let’s think of it more as your “safe place” rather than solitary confinement. And perhaps try substituting the “B” word for “safe place” going forward. Already feels better.
The bigger your budget or "safe place", the more room you have to do whatever you want while staying safe and comfortable. Even if it’s on the smaller side, it still provides you with the satisfaction of peace of mind. If you happen to venture outside of your safe place, you’ll be exposed to frightening things like past due bills, credit card balances, debt, interest rates, the works. No one wants any of these things as they can take a severe toll on your future. That’s why it’s important to have a positive relationship with you safe place. Everyone has a “safe place”, even billionaires and people who make a lot of money, their’s just may happen to be on the larger side. You have one right now. It exists with you always, even if you’ve never thought about it. The sooner you can acknowledge and get used to it, the better off you and your wallet will be.
So that begs the question: what is my safe place and how do I stay in it?
All you need: 50/20/30
Half of your after tax income (or take home income) should be allocated for your needs. Things like groceries, housing, utilities, health insurance, car, and commuting costs. Basically anything that if you were to forgo would severely impact your quality of life. If rent currently takes up half of your income alone, it may be time to find a slightly cheaper place to live or a roommate to make room for your other needs. Harsh I know, but think of this more as a tough love lesson.
Savings are often overlooked and the first causality in creating a safe place. The key to saving is paying yourself first and automation. Huh? Yes, setting aside money first for savings, and then seeing what’s left over guarantees that you are saving enough, rather than the other way around (making sure you don’t spend too much). Every paycheck, set up an automatic transfer into a separate savings account, ideally a high yield savings account. That way, you will put money away automatically without noticing, even if starting off small. Any big ticket items coming up like travel, weddings, moving? Make sure to save for them beforehand - the 20% rule will get you there.
The money remaining after your 50% needs and 20% savings, lands you at 30% of your take home income where you get to do whatever you want to live your best life - the "just for fun" section. Things like restaurants, gym memberships, drinks with friends, shoes, Netflix, a trip to London, juice bar, the list goes on. Given that there are so many fun things to do, it’s easy for this section to get expensive. That’s why it’s important to save first and to not spend money that you don’t have (i.e. use a credit card and not pay the full balance every month).
When you break it down, a budget doesn’t have to be intimidating. Keep an eye out for our final financial health post.