Today’s topic is going to cover how to set up your budget. How should you set up all of your accounts, all of things, money, and all of the things related to finances, and all that fun stuff. So thank you for listening. And we’ll get right into it.
**Disclosure: I am not a financial advisor, this is simply a perspective on my experiences and knowledge of money in hopes of it helping someone else out**
Below are some main points to consider when setting up a budget towards your path to financial freedom:
- Create a spreadsheet to track income and expenses. Use reddit or simply google personal finance spreadsheets for this.
- Prioritize savings by setting up automatic transfers of a certain percentage of income to a separate bank account. Example, $350 for groceries, $500 for recurring expenses like phone bill, utilities, subscriptions etc, Mortgage, and other buckets for travelling, emergency funds, etc. The better you can organize your consistent, short term as well as long term expenses the better off you’ll be!
- Avoid spending the transferred money to prioritize savings.
- Gain clarity and control over finances by understanding where money is coming from and going. Use mint.com since it’s free and allows you to see every single expense that you make.
- Don’t fall victim to lifestyle creep. As income rises, make sure to keep expenses relatively similar to what they were prior to an income boost.
- You can use the 50/30/20 budget rule to guide spending: 50% of income on necessities, 30% on discretionary expenses, and 20% on savings.
- Consider using the envelope method to physically allocate and spend money. (This is referred to as the digital envelope since most of your envelopes are just with bank accounts specifically for that expense. Schwab and Goldman Sachs are my recommendations by the way.)
- Evaluate expenses regularly and make adjustments as needed.
- Use credit responsibly and pay off balances in full each month.
- Build an emergency fund with at least three to six months’ worth of living expenses.
- Diversify investments to manage risk.
- Take advantage of employer-sponsored retirement plans, like 401(k)s. (It’s free money)
- Research and invest in low-cost index funds. Start early. (preferably real estate makes more sense but if you’re able to put in at least $100/m into index funds, it definitely pays itself off in 15-20 years)
- Take advantage of tax-advantaged accounts, like Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs).
- Take the time to educate yourself about personal finance and make informed decisions. (I’d recommend you invest in the S&Me 500 vs the S&P 500 since personal investments have outsized returns as opposed to 10% returns annually)
I hope this helped in some way. If you have any questions or things you’d like me to expand on, please leave a comment below!
Listen to the full podcast episode here: https://spotifyanchor-web.app.link/e/MPHTCBVkJvb