The very first step to changing your life is something that many people neglect to do: Build a budget. Not creating a budget can be a costly mistake (literally), and will hinder you from ever starting to build wealth. Keep reading to see how I built an effective budget that I reference almost every single day.
You cannot start to build wealth without a good budget. Facts.
If you don’t have a budget right now, you need to read this. If you do, read it anyways, you might learn something new!
This is how I want you to think about your budget: Your budget is your bible. You live by it, you die by it, you invest, spend and save by it. If you adhere closely to your budget, you will achieve financial freedom in no time.
The best part about it? You can design it to match your needs and lifestyle choices perfectly. Here, I’ll go over mine and my reasoning behind it.
If you want more information about budgets and how you can build your own, read my post on how to make a superior budget.
I will just go ahead and start off with a screenshot of my excel spread sheet.
As you can see here, I have divided it up into four columns: Yearly Budget, Monthly Budget, and my two pay cycles (I get paid twice a month).
I put 6% of my income into my Traditional 401k Retirement savings, which is pre-taxed. This means that when my income taxes hit, it takes less of my money. This is called a tax-advantaged account, you should always utilize these when you can! More on that later.
I did 6% because my employer offers a match for my 401k up to that amount. If your employer offers a 401k, find out if they offer a match, and just do up to the match percentage and nothing more (For Now).
My other retirement account, Roth IRA is up to the yearly maximum of $6,000 per year. This is another tax-advantaged account that I’m a big fan of, but comes post-tax.
After that comes the spendable income, which is where it is up to you to personalize it.
Read my Spending Roadmap: The Ultimate Guide post to know exactly where you need to focus your energy first. For now, you need to pay your immediate bills, and then build a $1,000 Emergency Fund. This is vastly important. Dave Ramsey, the legend himself, always stresses the significance of this emergency fund. (I call it my rainy day fund, you can call yours whatever you want!)
After that, the loans and debt need to get TERMINATED.
Start throwing every spare dime you have at your debt.
Notice how I haven’t budgeted “eating out” or “shopping”. When you are in debt, you do not need to be doing those things on a weekly basis, therefore it does not earn a spot on your bible of a budget.
Later on, we will go over some tools that I use to help me control my “pointless spending” urges.
With this budget, I am successfully putting 18% of my income towards retirement. I am also putting money into short-term savings and emergency fund accounts, and putting plenty of money into my student loans.
Once my emergency fund hits $1,000, I will be putting that budgeted money entirely towards my student loans.
My vehicle is already paid off, but this is something that you guys will need to calculate as well if it applies to you.
Some people may say “Well I don’t make that much money” or “I have two kids so my expenses far exceed my income“.
I know, things aren’t going to be simple for everyone. However, creating a budget will always be the first step for everyone, no matter your situation. Making excuses is never going to help you, and those tougher situations just make it more dire for you to have a budget.
Now that you have seen an example of the budget that I use, and refer to every day, we’ll take a look at how you can create your own budget that will begin your financial freedom endeavors. I’ll even include a spreadsheet that you can plug your information into to get an easy-to-use budget just like mine!
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*Disclaimer: Some of the links in this post are affiliate links. This means if you click on the link and purchase the item, I will receive an affiliate commission at no extra cost to you. All opinions remain my own.