This is a topic that I wanted to get to, and a reader mentioned it on the “Cover This!” tab. So I figure, no better day than today. In short, the reader is asking what kind of balance you should have in your life between spending and saving. This question does not have a “one size fits all” answer, but there is certainly a happy medium in everyone’s life. It also has to do with purposeful spending, which I mentioned in the post named, “Mo Money Mo Problems.”
If you are in debt (besides the house), I would have a lot less balanced spending and a lot more paying off loans at a furious pace approach. If you think about it, besides school loans, if you are in debt you have probably been living an unbalanced life from the spending side, so it only makes sense to now live an unbalanced life from the get out of debt side (payback side). The freedom that you have with your money once you’re debt free truly is a freedom to enjoy spending your money on things that are important to you. Living in debt is no way to live, and until you are out of it, you need to pay for the things that put you there (or sell them). Obviously, that’s my personal approach, but I know it feels awful to be in debt and it feels great to be debt free.
Now, if you are debt free, you’re ready to rock n’ roll. I know people that are debt free that save like Scrooge, if they drop a penny in a sewer; they‘re diving in after it. That’s great; for them, but not everyone is worried about having $20 million in the bank when they retire. For some people, they want to enjoy their lives and retire with a cool $1.5-4 million so they can continue to enjoy life like they have been. Guess What? It’s up to you how you want to live your life, but a good balanced approach is always something that I advocate as I believe it will lead to the most financially fulfilling life that one can have. I will be posting a new tab on the home page soon, with a label of “Budget” or something like that. There, I will share 3 to 4 different budgets that I think make sense for everyday life (They will include budgets to get out of debt, pay off the house, and balance). Below is a balanced budget that I think makes sense from a debt free but the house standpoint.
I attributed take home pay of $4,000 a month for ease of use. Attribute the percentages to your take home pay to see where you fall in the categories. As you can see, there is some flexibility in the categories, if you use the maximum percentage allocation of each category you will go over 100%, you will need to figure out what feels good to you. Keep in mind that I labeled the columns 1-9 as this is the order of importance that I like to stress on my budget. You may think medical is more important than housing, so again, it’s up to you, this is just a guide.
1.Giving – 10% = $400 – If you think saving money feels good, wait until you save money and give back to causes of your choice. These include anything from Churches to causes that are near and dear to your heart.
2.Saving – 15-20% = $600-$800 – By now, you know the importance that I stress on this category
3.Food/Groceries – 8% = $320 – you have to eat
4.Housing – 25-28% = $1,000-$1,120 – shelter is pretty nice too
5.Utilities – 5% = $200 – I hate these things, but I do enjoy hot water and lights
6.Transportation – 8% = $320 – gas prices are ridiculous
7.Medical – 8% = $320 – you never know
8.Social/Fun – 8-12% = $320 – $480 – the fun part! All savings and bills are paid, it’s time to enjoy some of the benefits of your hard work
9.You Decide/Short-Term Purposeful Spending – 8-12% = $320 – $480 – If you are not saving for anything, do as you will. I recommend using this category to save for cars, vacations, presents, Christmas, unexpected carry over from my fun money (not ideal, but it happens to me sometimes)
*This will put you in the range of $3800 – $4440
Somewhere along the line budgets were given a bad rap, but they are great! A budget is just a plan to spend your money, its purposeful spending in its simplest form.
Back to the point, living life in one extreme or the other is not fulfilling because it will turn you into someone you’re not. If you live a reckless financial life and rack up huge amounts of debt and spend every dollar you earn, one day you’re going to turn into a stressed out mess when you lift your head and realize the situation you put yourself in. On the other hand, if you live like Scrooge and become consumed by grabbing every dollar you can, you may look up in a few years and realize that you aren’t the person you want to be and you have turned into a greedy and uncaring person. Living life with a balanced approach allows you to have fun, but monitor your money so that you are taking care of your financial future. Balance allows you to take care of your priorities, buy cool things, go on vacations, GIVE BACK, and most of all enjoy the good life, because at the end of the day it is the good life.
Happy Wealth Building,
Please list any of the ways that you think balance helps you in your everyday life. Also, feel free to post a budget that you use to help maintain balance, I try to reach everyone with my thoughts but your budget knowledge might be exactly what someone needs to get on track!