Best budget for beginners – the 50-30-20 method

Whenever I think of the best budget for beginners, I always think of the 50-30-20 budget.

Maybe I’m biased because it was my first budget when I graduated from college. But in all honesty, I think this method is a great one to start with no matter how old you are or what situation you’re in.

best budget for beginners

Best budget for beginners – the 50-30-20 method

I made a video on my Youtube channel about the 50-30-20 budget where I go over what it is, what I like about it, and even what I don’t like about it.

You can find out why I think the 50-30-20 method is the best budget for beginners below:

What is the 50-30-20 method?

The 50-30-20 budget suggests that you spend your money as follows:

  • 50% to your needs

    • Your needs are basically your expenses that you have to pay in order for your basic needs to be met.
    • For example:
      • Rent/mortgage payment
      • Minimum payments on your debt
      • Groceries
      • Electricity/utilities/water bills
  • 30% to your wants

    • This is exactly what it sounds like – you get 30% to spend on whatever you want!
    • For example:
      • Hobbies
      • Entertainment/going out
      • Eating out
  • 20% to savings

    • Your savings range from short-term to long-term. Basically, this amount is going towards taking care of the future you.
    • For example:
      • Emergency savings
      • Retirement contributions
      • Big purchases: car, house, etc.

Why is the 50-30-20 method the best budget for beginners?

So, why do I think the 50-30-20 method is the best budget for beginners?

  • It’s simple

    • When you’re putting together your very first budget, you want it to be simple. Anything complicated will just overwhelm you and make you want to give up on a budget entirely.
    • You only have to categorize your expenses into 3 categories: wants, needs, or savings. Again – this simplifies tracking your spending, which can be a daunting task in and of itself.
  • You have room for your ‘wants’

    • For some reason, the personal finance space gets a bad rap for telling others that you shouldn’t be spending on wants at all. This simply isn’t true – allowing yourself to spend on wants can keep you sane while you’re on a budget, making it a more sustainable change.
    • When beginners immediately cut out all fun spending, it can be helpful at first. However, in the long run, doing so can lead to resentment which might lead to uncontrollable spending later on. Allowing yourself to have room for wants in your budget allows you to put a cap on how much you can spend each month while still making progress on other parts of your finances.
  • The guidelines can serve as markers of your financial health

    • When categorizing your expenses into the three categories (needs, wants, savings), you can instantly see whether you’re doing well with your finances or not.
    • For instance, if your needs constantly fall at or below the 50% mark, you know you’re on the right track. However, if your needs are considerably above the 50% mark, you know you need to zone in on that category and make some changes.

Why is the 50-30-20 method not for everybody?

  • It may be too general

    • Yes, I mentioned its simplicity as a plus. But it might actually be too simple for some.
    • There are just some expenses that might not fit into a need, want, or savings category. Instead, you may want to get more specific with your spending categories.
  • Your goals don’t align with the 50-30-20 split

    • The 50-30-20 method is a great beginner’s budget, particularly to keep your finances in balance. However, if your finances aren’t balanced to begin with, the 50-30-20 split might not be ideal for the moment.
    • For example, 30% allocated to your wants might be way too much, especially if you’re deep in debt. Instead, you might want to lower your wants budget temporarily so you can throw extra money at your debt.

Even though it’s not a perfect method, I still think that the 50-30-20 budget is the best budget for beginners.

Have you ever done the 50-30-20 method before or are you doing it right now? What do you think of it?

AMDG,
Lisa

17 ways to improve your finances in 2017

17 ways to improve your finances in 2017

The new year usually sparks many of you to want to improve your finances. Now, I’m not usually one for New Year’s Resolutions. But I’m all for focusing on your financial health. If the New Year sparks that fire within you to get your finances together – then I’m all for it!

Here are 17 ways to improve your finances in 2017. Choose a few of these to focus on in the New Year if you’re new to personal finance. I don’t want you to be overwhelmed. But I do want you to make some real change in your life.

improve your finances

Overall financial health

1. Dream a little

This may seem like fluff advice, but I really believe that dreaming/envisioning the ultimate financial state can really get you revved up to actually improve your finances! So take a moment to really imagine what it would be like to live with no more debt. To finally turn in that last payment for your mortgage, car loan, student loan, etc. Imagining this huge weight coming off of your shoulders can help you get started on actually tackling your debt!

2. Know your numbers

To improve your finances, you need to know where you are currently. Make it a point to know and be more mindful of your monthly income and expenses. Your entire personal finance journey is built with these building blocks! Here’s a video I put together on how to get this information if you don’t already have it.

3. Track your net worth

This tip goes hand-in-hand with the previous tip of knowing your numbers. Knowing your numbers is one thing, but actually tracking your numbers each and every month is what helps you be more mindful of your situation. The key here is checking in on your finances every single month, whether it’s your net worth or your income/expenses. (I hope to do a post/video on what your net worth is soon).

4. Educate yourself about personal finance

I get it – the world of personal finance can be overwhelming. But running away from it is a surefire way to not get anywhere financially. Make it a point to read a book (I recommend The Total Money Makeover by Dave Ramsey or I Will Teach You to be Rich by Ramit Sethi) or listen to a podcast (I recommend The Dave Ramsay Show or Stacking Benjamins) about personal finance once a month or so. Believe me – avoiding personal finance will not solve your personal finance problems!

5. Focus on one or two financial goals

When you focus on way too many goals at once, you tend to lose track, get overwhelmed, and fail at most of them. Choose one or two goals to focus on this year. Will you work on increasing your income or decreasing your expenses? Is this the year you get serious about your debt or start saving for emergencies? Pick a goal that will improve your finances and get started! I personally suggest following Dave Ramsey‘s step by step goals if you don’t know where to start.

6. Get in sync with your significant other

This is something Juan and I are still working through. Actually, I think this is something that will just become a constant conversation. As your goals change, your spouse’s may change as well. As you improve your finances, make sure your partner is still on the same page as you. Make an effort to check in with each other each month to make sure you’re working towards both of your goals.

Increase your income

7. Start a side hustle

Your main income is great, but having a side income can really help with your financial goals! Don’t know where to start? Think of things you already love to do – crocheting, working on cars, spending time with pets… chances are someone has already come up with a way to monetize it! Think of how you can monetize one of your hobbies so your side hustle can also be something you enjoy doing!

8. Work towards a promotion

Nine times out of ten, a promotion leads to an increase in income. Make sure you are an absolute stellar employee – make it into work on time, finish your tasks in a timely manner, and make sure all the work you do is done with integrity. Then, when a spot above you has opened up, make it known to your manager that you are interested. Work hard and your work will speak for itself!

9. Work towards and negotiate a raise

Sometimes a promotion just isn’t in the cards. That doesn’t mean you can skip asking for a raise. Make your case as to why you deserve a raise, do your research on the average salaries for job titles closest to yours, and have an honest conversation with your manager. Warning – this only works for great employees, not just any employee. Just because you want to improve your finances doesn’t mean you deserve a raise.

10. Sell some stuff

Got a ton of unused clothing, appliances, toys, etc. lying around? Donate the stuff that is already in poor condition and sell the stuff that is still in great quality! eBay is a great place to start, but there’s nothing wrong with a good ol’ fashioned garage sale. The extra cash will come in handy as you improve your finances.

Expense control

11. Give up just one thing

I’m not asking you to give up cable, coffee, soda, AND gift giving all at once (although – more power to you if you want to)! Start small – what’s one expense, big or small, you can go without for all of 2017? For me – I’m going to cut back hard on eating out. Speaking of eating out…

12. Eat out less

It’s no secret that eating out often can do a lot of damage to your waistline. But it also does a ton of damage to your wallet! I’m not saying you should eliminate eating out completely – just cut back! Juan and I are going to stick to eating out only twice a week (this is a huge step back from our normal 5-7 days a week)!

13. Find another commute option

For us 9-5ers, a commute can really make or break the budget. Take a look at what you spend now on your commute (gas, toll, train fare, etc.) and look up other options available to you. Keep in mind the cheapest option may not be the best in terms of time spent, so make sure you take into account all things – not just the price tag.

14. Cut out cable

*gasp* I know, how dare I say these words??? But let’s face it, y’all – cable is expensive! With Netflix and Hulu being at extremely affordable rates, the case for still having cable is starting to dwindle. For us, the hardest part will be finding ways to watch our Golden State Warriors and other sports broadcasting. But other than that, Netflix and Hulu usually does the trick for our TV fix.

Beef up your savings

15. Seriously, get an emergency fund

I don’t care if you’re in deep debt – get yourself a freaking emergency fund! If you don’t have on yet, building one this year will greatly improve your finances. You are not invincible and Murphy loves visiting those who aren’t prepared. Even if it’s just $1,000, it’s a great start and better than nothing.

16. Set up a personal escrow account

You know those annoying expenses that don’t happen every single month and surprise you whenever they do pop up? Setting up a personal escrow account will prepare you for all of those expenses. Pair it with automatic savings and you don’t even have to think about it!

17. Start saving for retirement

I don’t care how young you are – it’s never, ever too early to start saving for retirement! No one ever said, “Man, I really wished I waited longer until I started saving for retirement”. For starters, look and see if your employer offers a free match to your contributions into your company sponsored retirement plan. Basically – your employer will put money into your retirement plan for free as long as you’re also putting in money! Take advantage of that free money!

So there you have it – 17 things you can work on to improve your finances this year! You don’t have to do all of them – in fact, I suggest choosing just one or two of these things. Focus on a few goals at a time and you’ll be well on your way to financial peace.

What are your financial goals for 2017?

AMDG,
Lisa

The Budget Series Pt. 1 – Income and Expenses

The Budget Series Pt. 1 – Income and Expenses

It’s the beginning of 2017 and I know that some of you want to get your finances together this year! If one of your New Year’s Resolutions is to grab control of your income and expenses, I’m here to help!

I’m creating a video series called The Budget Series that will go over different budget methods for different types of people. The first video in this series is focusing on your income and expenses. More specifically, how to gather these numbers and why they’re important, no matter what budget method you choose.

Your income and expenses are vital to all kinds of budgets, whether you’re a beginner or more experienced. This series is mostly targeted to budgeting newbies, but I’m sure you’d find this helpful even if you’re more advanced.

Please watch the video below and don’t forget to like/subscribe so you don’t miss the rest of The Budget Series!

What are your budgeting struggles?  How can you improve your income and expenses this year?

AMDG,
Lisa

The Emergency Fund – The ONE THING Everyone Needs

The Emergency Fund – The ONE THING Everyone Needs

[Disclaimer: this post contains referral links.]

There were plenty of times within the last few months when I felt compelled to write this post. As I was involved in family issues and heard of friends’ transitional times, I felt the need to share this one thing.

The ONE THING everyone needs to have is an emergency fund.

Emergency Fund

Now, this isn’t news in the PF community. For those familiar with Dave Ramsey’s Baby Steps, this is Baby Step Number 1! Having an emergency fund is a no-brainer for us PF nerds.

But this post isn’t for the personal finance blogosphere. This post is for those I know who claim that personal finance just doesn’t make sense to them. This post is for those who get caught up in the confusing lingo of 401k vs. Roth IRA vs. Traditional IRA, get overwhelmed, and simply give up. This post is for those who are worried about how their finances are and have absolutely no idea where to start.

I beg urge you all – do not let the overwhelming world of personal finance stop you from setting up your emergency fund.

The very first thing everyone needs to have in their finances is an emergency fund.

What is an Emergency Fund?

An emergency fund sounds just like what it is – funds set aside specifically for emergencies. This fund is there for you when little snags in our life plans happen – when your car breaks down, when an unexpected expense pops up, or even if you fall victim to an unfortunate layoff at work. When these things happen, you’re going to want to have a little cash to help you as you’re working through it.

***Note – an emergency fund is not there for you “just in case” there’s a really great sale at Macy’s.

Now, some may argue that they don’t need an emergency fund – they can use their credit cards for emergencies. Heck – I was in that same boat not too long ago! But I’ve since switched over to having cash as an emergency fund, not credit. Having a liquid (meaning: easy to get to) emergency fund is best for emergency situations. In general, when in an emergency, you won’t want to have to worry about how to pay for things, let alone paying interest on top of whatever you have to spend. Cash is king in this situation, my friends.

How Much Should I Have in My Emergency Fund?

There are a lot of factors that determine how much you should have in your emergency fund. But at the bare minimum, you need to have $1,000.00 set aside for emergencies. In fact, that’s what I have in my emergency fund as of right now!

For higher risk situations – freelancers, families, etc. –  you’re going to want to have a bigger emergency fund set aside. Many suggest having an emergency fund consisting of 3 to 6 months worth of expenses.

But those of us who are single and have no dependents, $1,000 is a great start. If you’re debt free – having 3 to 6 months worth of expenses is a great idea. If you’re still in debt, though (ahem like me), the bare minimum of $1,000 will do until you climb out of your debt.

Ultimately – you should at least have $1,000 in the bank. After that point is really up to you and your situation. The amount you have set aside for emergencies should help you sleep at night, not keep you up.

Where Should I Put My Emergency Fund?

You’re going to want to keep your emergency funds close so that the money is easily attainable when emergencies happen. But you don’t want your emergency fund too close in case you get the temptation to use the funds as something other than an emergency.

**Note – Do not put your emergency funds in time-restricted accounts such as CDs (Certificates of Deposit). CDs are really meant for investing, not for emergencies. Plus, there are penalties for withdrawing money early from CDs.

My emergency fund is at Capital One 360, but really you can have yours wherever you prefer. A good place to start is to see if the bank your current checking account is at offers savings accounts.

I have a separate savings account set up in my Capital One 360 account just for emergencies. It’s close enough that I can access the money without any penalties. I would still have to transfer the money from my savings account into my checking account to access it with my debit card. This transfer step, although very easy, allows me to really reflect on whether this is really an emergency or not.

I get that personal finance can be overwhelming. But please, please, please – take the time to set up your emergency fund! This is step one to financial peace. Once your emergency fund is in place, then we can start worrying about all the other stuff – debt repayment, retirement savings, etc.

AMDG,
Lisa