Budgeting can be your best friend or your worst. Your budget can bring you to levels you never thought you could attain. Your budget can also hold you back from doing things in the moment, that could give you instant gratification. A budget is a double edged sword but I believe it is the most useful tool anyone can have, when it comes to finances.
Sam and I have been following budgets for years and it has helped us immensely. It allowed us in our first year of dating (which is when I started my business and made a total of $5,500.00 that year (on paper), to save for a trip to go to Asia which was $3,200 each plus spending money. We had a budget for every level of our spending. In order for me to save up, I had to live extremely frugal, and buy and sell a lot of things on Facebook and Craigslist to save up for the trip. It worked and we were able to go on a trip of a lifetime while starting a business and going to school full-time.
We have upped our budget since then and now have a little higher standard of living. I will breakdown how Sam and I currently have our budget, this is not the only way to budget but it is a pretty easy one to follow. Since we are engaged and getting married, we now share our income.
Our paychecks get deposited into our personal checking accounts. We transfer 60% of our paycheck to our joint account. This 60% is for bills, weekly spending, living, etc. Then we transfer 30% to a Robinhood or a separate savings account (these we have separate from each other), this money is for investing. We are currently trading in the stock market to build up more income to invest into real estate. I will discuss what kind of real estate we are looking at investing in, in other posts. Lastly, we transfer 10% of our paycheck into our savings account. This 10% is for fun/vacation. We think this is a crucial category for enjoyment of life and being able to tread through the struggles of a budget. If you do not allow yourself time and money to unwind and enjoy your fruits of labor, you most likely will not sustain your budget long-term.
I believe these three categories are key for longevity and consistency. We base our percentages off of our two salaries only. This does not include extra money we make from rentals, our Home Improvement Company, or my partner draws. So, we live off of 60% of our salaries! This has to be our standard of living. You want a new car, it fits in that category, or you if you want a new toy like a motorcycle or a boat, it’s in that category. If you are not a fan of vacationing and you want to buy a toy with your fun money, that is also a viable option. The 60% we allocate to all of our bills, has to pay for our lifestyle, and any debt we may have to pay off. Examples of debt include: credit card, student loans, car loans, personal loans, home mortgage, etc.
If needed you can break that 60% into smaller sections. In our 60% category, we have a set amount for food and personal spending every week. At the end of the week, we save our left over cash to either put towards debts or it can be used as extra fun money. Let’s say you have a shopping problem, then you can say you only get 15% of the 60% for shopping. It’s a good umbrella category, that you can customize underneath as much as you need.
You can invest the 30% into whatever you feel will be a good return. We are looking for cash flowing properties or flips to grow into cash flowing properties. If you have a lot of debt, maybe invest in paying off your debt, so you are able to live within that 60%. It is crucial to invest for your future, think about making your money work for you, not you working for your money.
Lastly, 10% for vacation and fun, do what makes you happy with this 10%.
Our breakdown looks like this, your breakdown could be however you see fit.
60% for bills
30% for investing
10% for vacation
All profits from owner draws, rental units, and home improvement company get invested.
If you don’t have as many expenses then you can shrink the bills category and expand the others as much as you would like. Or if your bills are more than 60% of your income, then you can shrink the other categories. If this is your case, you should also break down your bills and see where you can cut back on some sections. If you are spending a good chunk of money on eating out, then try meal prepping and eating home cooked food to cut down the cost. If you like to buy all brand new clothes every season, try buying only 1 new item a week and go to second hand shops to get the other things you may need. There are always places to cut down costs so you are able to pay off debts faster and be able to increase your fun and investing categories down the road.
Hope this helps!
Your Tutor of Life