I always like to talk about my 50/20/30 budget because the simplicity of it works for me! The concept is easy but knowing whether you are staying within your allocated percentages is another side to the story that I forgot to tell! If you’re like most people you probably have asked yourself time and time again, “why can’t I stick to my budget?!” For those who have tried time and again to create, and (most importantly) stick to a budget, they find themselves giving up on budgeting because it seems just a little too complicated to worry about. Sure, why be concerned when you’re making enough to pay bills and save a little on the side? It will all work out in the end, right?
Sure, it could end up okay or it could end up with disastrous consequences! Do you really want to leave your financial security and future retirement options up to chance?! I surely don’t and I consider myself very blessed because when I graduated college with a ton of student loan debt, I was lucky enough to fall into a job working with financial advisors! I had no personal finance knowledge, a lot of debt, no plan and God put me in a position to learn and work alongside professional money managers which completely opened my eyes to this side of my life that was an absolute mess!!
The first thing I did was set some short-term goals. My short-term goals included getting a clear picture of my financial picture which meant I pulled a credit report, figured out how much I owed in student loans, determined how much my other monthly bills were, and calculated how much money I had coming in every month. I set up a budget, a debt repayment plan to pay everything off as quickly as possible, and was sure to take advantage of my company’s 8% match on the 401(k) retirement plan. I was still a mess but at least I had a better sense of control on my finances. This was a huge turning point in my life because as I was taking steps to get on track, a fire ignited inside of me! I became a money-saving master where I put my wants on hold and figured out what I could do without in order to not spend money. That extra money was saved or thrown at debt. Progress was slow but was measured monthly to keep me motivated.
Once I clawed myself through the mess, my goals became more pinpointed! Those goals are still active today. I want to retire earlier than the average American and I want a life full of travel, exploration, and mission work. To me that is what I find fulfilling and what I work towards everyday. I don’t want to leave that to chance so I work very hard to stick to my budget. I save religiously and always keep costs front of mind, but I’m not depriving myself as I am sure to include a good chunk of funds to spend on shopping, personal care, and the other little things I enjoy (Target and Hobby Lobby anyone?) . Is my husband annoyed when I ask for a discount wherever we go? Yes! Is he thankful for all we have today and the progress we’ve made? Yes! Who cares what others think?! I’m different from most people because unlike most people, I enjoy finding new ways to save and challenge myself to get a good deal. Most of my friends laugh it off, because yes… it’s a little weird, but I know that my frugality and those little things that I do and that I’m intentional about,are going to afford me the financial freedoms that I crave.
Mastering Cash Flow
So how do you do it? How do you stick to the 50/20/30 budget without spending all of your time worrying about the budget?! The simple answer is to automate everything. You already know 50% of your income is going to essentials so set up a free checking account and nickname it ‘Bills,’ and you know that 30% is for spending so set up a second free checking account and nickname it ‘spending’ for example, the remaining 20% for financial priorities should go to savings or your retirement account. Many employers that have direct deposit will allow you to set up multiple accounts to direct deposit your paycheck. This is the simplest and easiest way to automate everything!
This works brilliantly when you have a fixed paycheck and you will begin to find a normal rhythm through payment cycles and outflows over time. When it comes to spending you know you are limited to only spend what you have in your ‘spending’ account and when that is gone, well you’ll just have to wait until the next pay period for your discretionary spending. But what if you have a paycheck that varies month to month? This is a bit trickier but even more important to make use of your three accounts. If you have an unequal income, the first step is to average your income over the past year and base your budget on the averages. Set up your direct deposits (or automatic transfers if you do not have direct deposit) to a fixed amount of 50%, a fixed amount of 20%, and the remaining amount may not always equal the full 30% you have previously budgeted for however some months it may be more and some months may be less. The idea is to not blow through the really good months and to preserve some of that extra spending money for the tougher months.
Do you have any other tips or tricks you use to help you stick to your budget? Please share them with me!
Disclaimer: I am a CERTIFIED FINANCIAL PLANNER TM (CFP®), but I am not your CFP® or financial advisor. The information in this article is for general informational and entertainment purposes only and does not constitute financial advice. This article does not create a financial planner-client relationship. The author is not liable for any losses or damages related to actions of failure to act related to the content in this article. If you need specific financial advice, consult with a licensed financial advisor or CFP® who can tailor advice regarding your specific circumstances. Additionally, sometimes I use affiliate links to support my website. This means I may earn a small commission, which is no additional cost to you, for referring and discussing products and services that I personally use, or have used, and trust. Thanks for your support!