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How To Budget | Financial Basics

  • SUW 

Most people get paid, pay their taxes then spend the rest of their money, wondering why there is nothing left to invest or do anything productive with.

You need to set up a system for yourself that puts your money on a converyer belt for you and gives every penny a job to do without you having to think about it.

The very basics are to have a portion towards savings, investing and spending. These proportions will look vastly different depending on your life situation, responsibilities, financial situation etc.

A general prescription to start with is 75, 15, 10 where you are allowed to spend 75% of your money, you have to invest 15% and save 10%/ This really is the very basics, you should quickly surpass this. But for now, this is the funnel you can start with. Either have three separate bank accounts that automatically take these amounts from your chequing, or do it yourself the second you get your paycheck.

Saving

Again, how much you save will depend on your responsibilities, expenses and life situation. Save 10% of your income until you get to 3-12 months of savings, depending on you. After that, take this 10% and put it in the investing bucket. You don’t want to save too much because inflation (separate video) will eat into the value of your money.

Spending

Get a piece of paper or an excel sheet.

Write down how much you earn, post-tax in a month.

Pull up your previous month’s statement and start writing out your expenses. This will be painful but you need to do it.

Be honest with yourself and decide where to cut back.

You now know that you have to save 10% and invest 15% no matter what. That money is not even available to you. Think of it as a tax to the government. Doesn’t matter how you feel about it, it needs to get paid.

So now 25% of your paycheck is gone in those two things, no questions asked. Non-negotiable.

With the remaining 75%, start with your staples; grocery, rent, vehicle, phone bill etc.

These are your foundations. Be smart about how you spend here too and try to negotiate what you can. We have sperate posts about how much you can actually afford in these areas but lets move on for now.

After your initial 25% and foundational spending, you have left over what you are actually allowed to spend.

I am not your mom or dad. Be an adult and be honest with yourself about what you can actually afford. The rule of 5 applies in most cases where if you can’t afford 5 of them, you can’t buy 1 of them.

Be honest about your needs and wants and apply some delayed gratification here.

These days, it is easy to buy whatever you want, without actually being able to afford it through debt. That’s a very bad idea and sends you down a path of misery.

The math will always math at the end of the month. Be honest, be mature and spend like an adult.

Growth

Now you have 15% of that initial pay check that you must invest to get wealthy over time and secure your future.

You need your money working for you if you ever hope to become financially free.

There are tons of videos and some of our posts that talk about how to invest, where to invest etc.

Again, this very much comes down to your risk tolerance and  life situation as well as goals. Generally, the higher the risk, the higher the reward.

Me personally, if I am going to take risk, it will be by betting on myself and investing into growing my skillset and businesses.

I max out my tax free investing accounts with boring ETFs and REITS. I don’t think about it. I don’t analyze stock charts. I put my money there, and let time do its thing.

Every penny left over after that in this bucket, goes into my own businesses and improving myself and becoming more valuable in the marketplace.

Depending on your personality, risk tolerance and goals, you can invest into real estate, stocks, crypto, franchises etc. We’ll chat more later about investing specifics but the above is what I’d suggest to a friend. The point is, you need to put a bare minimum of 15% of your paycheck to work for you while you sleep and enjoy life.

And there it is. A proper budgeting system that gives every penny in your life a role to do.

Once you have this locked down, try to decrease spending and increase investing.

And at all times, keep becoming better at what you do and looking for better opportunities to grow the initial pie you start this process with.

Cheers

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