Hey! I’m back again with another budget post. I am hoping to give you some tips to get on track for less stress in 2020. If you missed it, you can look back at my initial posts from a couple weeks back about sticking to a holiday budget and getting out of debt.
I mentioned in my post about getting out of debt – know your WHY. Budgeting is hard, you often deny your wants, and having a strong motivation for why you’re doing it is key.
Steps For Setting Up A Monthly Budget
- Calculate your monthly income. When I was a nurse practitioner I had a very steady income. Now as a business owner it varies quite a bit from month to month. I have more projects and income around the holidays, where as late winter is quite slow. I use my projected lowest monthly income to calculate our budget.
- Calculate your monthly expenses. Be mindful of the year as a whole. While groceries and clothing are things you buy on a regular basis, you need to be planning each month for a vacations and holiday spending. You don’t want to carry over December’s holiday debt into the New Year so start planning for it in January! I always budget at the high end for both utilities and things like clothing because I never like to come in over budget.
- Finds areas you can cut back on expenses. Looking at your monthly budget is likely a huge eye opener. When I did this we made a plan to immediately cut back on eating out. Better planning when it came to grocery shopping helped reduce that expense. Food is our biggest monthly expense after housing so it’s a place where we decided to be more cost conscious.
- Make a plan to tackle debt. This was the topic of my last post but get out of debt as quickly as possible. I have never bought a new car, but I know a lot of people who are drowning in car payments. Consider scaling back your car. I drive a 2004 SUV that I hope to drive until it turns 20 years old. Student loan debt is another big one. When Chris and I got married we split the cash we got as wedding gifts and I used it to pay off the remaining student loan debt I was carrying. If you are prone to credit card debt – stop using credit cards! You can’t afford what you’re buying if you are paying large amounts of monthly interest.
- Set up monthly savings targets. Save early for short and long term items. Vacations and holiday spending are predictable, but I also believe in saving early for retirement and my kids’ colleges. The earlier you start saving for these things, the more return you’ll get on your investment. Hiring a trusted financial advisor you can expect around an 8%+ return on your retirement savings each year so this will continue to multiply over the years. If your employer offers a company match – max that out! Below I’m sharing what I delegate to savings accounts.
- Track your progress. These days a lot of people are tracking their budgets in apps on their phone. I’m still a paper person. I have the Dave Ramsey “Every Dollar” app but I’m not great about keeping up with it. Another one that was reader recommended was YNAB (You Need A Budget).
How I Break Down My Monthly Budget
This was heavily influenced by listening to the Dave Ramsey podcast so if you’re a fellow listener this will sound familiar.
First – make sure you have an emergency fund. Before you get started on the future, take care of the now. If someone loses their job, or the furnace goes out in the winter – make sure you can cover a few months of expenses with cash you set aside in an easily accessible savings account. Dave Ramsey suggests 3-6 months of expenses. We have this set up, so we are onto the savings part.
I put aside my savings first before I budget WANTS (clothing, vacations, and dining out, etc). As a business owner I don’t get my taxes automatically removed from my check so I set aside a THIRD 😧 of my income to pay taxes quarterly. Talk about an eye opener going from working for the man to working for myself – ouch!
After that large portion is mentally gone the first things I allot are putting aside 15% of our income for our annual retirement savings and then $400 a month into a 529 account (college savings plans) for each of my kids. The earlier you contribute the more time this money has time to grow. I’m saving hard now and planning to pull back when they’re closer to college age and cash flow some of those expenses. I’m hoping by then our mortgage is paid off.
I say “our” – but in my household while “we” agree on a budget I track the finances more closely than my husband. Previously we relied on two incomes, at the moment we rely more heavily on one. Your budget will change as life changes, so the start of a new year is a good time to reflect.
Now that the “adulting” stuff is accounted for I then think about vacations and holidays. In my family gifting is not such a huge expense or priority, so my holiday budget is geared equally at charitable giving and saving for things we will gift our loved ones. We are taking a vacation in March and we paid for the hotel ahead of time in return for a 20% discount. Because we have already paid off the resort and flights, we are now putting aside money each month for meals, adventures, etc while we are away.
We scaled back a lot of vacations the last couple years because we spent a lot on home renovations and purchased a “vacation” home. Oops, I mentioned we will be selling that home because I don’t think it’s a good investment. We are now paying a monthly mortgage (HELLO HUGE INTEREST BILL) on that home. I don’t plan to make another real estate investment until I can pay for it wish cash.
Once you cover all the savings, utilities, housing, clothing, etc. you have some fun money. For us this is mostly day trips and then I use most of our remaining cash for our home (both paying down the mortgage and updating the home). Most people aren’t as particular about updating their homes as I am. We all have our weaknesses…right?! Maybe you prefer more vacations, a designer bag, whatever it is – I’d recommend holding off until you can pay in cash!
IN SHORT – Prioritize
Again, this is how I go down my list. This is a quick review of how I break down our income now that we have only mortgage debt and have established an emergency fund.
- Pay for Housing – most financial advice blogs recommend a monthly mortgage bill that’s less than 25% of you monthly income (using a 15 year mortgage after putting at least 20% down).
- Pay Utilities and Groceries
- PAY OFF DEBT (paying off debt comes BEFORE saving, interest payments will really bite your finances). The exception is your mortgage. You will want to start saving for retirement and college while you’re paying down mortgage debt.
- Set aside 15% for retirement (and if you’re saving for college – do that along with budgeting retirement savings).
- Make a clothing, technology, health and entertainment budget. I’ve mentioned – my clothing budget is not relatable so I don’t think it’s helpful to share it. Purchasing clothing is often a business expense if I’m collaborating on a project with a brand. I used to belong to a gym, but right now I’m using a home treadmill with an online class app. As a former cardiology APRN I do believe it’s wise to invest in your health.
- Save for holidays and vacations. The goal is to pay cash for all of these things. If you’re looking to go back to school or renovate your house – again 🙋♀️ – these are things to start saving for so you can pay cash for them rather than taking out loans. I set aside around $150 a month for the holiday season. I have mentioned my love language isn’t gifting so more than half of that budget goes toward charitable giving.
We have only mortgage loans left and I have a certain timeline I plan to have them paid off. As I mentioned we will be selling our summer home. I’m crossing my fingers that will happen quickly when we list it this spring. Again, if you’re looking for more resources Dave Ramsey is a great read as he simplifies the steps to get out of debt and plan ahead for the future.
If there are other topics you’d like to hear more about I’d love to hear from you below. AGAIN – I am not a financial expert. My background is in healthcare and now I am a full time blogger so I’m only sharing methods that have worked for ME. Take this for what it’s worth and seek the advice of a true professional if you haven’t already. I want you all to have a wonderful 2020 and I think freeing yourself from debt is hugely important for lowering your stress level. CHEERS TO 2020!!!