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How to Budget Your Money and Really Enjoy the Process and Results of It

By: Brian Kim - March 20, 2009

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The word “budget” tends to make people cringe because to many, it evokes images that fit words such as deprivation, restriction, pain, and because of that association, they avoid it like the plague.

Also, they may feel like there’s too much work involved in creating a budget, too much tracking to do, too many details, etc., so they don’t feel like doing it.

So here’s a really simple way to budget your money on a monthly basis and really enjoy the process of it and the results as well.

10% - Save it no matter what. NO MATTER WHAT.

10% - Invest (will elaborate later on)

70% - Spend it to meet all your needs

10% - Spend it guilt free.

That’s it.

And the money I’m talking about here is AFTER TAX dollars.

Let’s break each section down.

10% - Save it no matter what. NO MATTER WHAT.

Notice this is FIRST, above everything else.

You heard it over and over again. Save 10% every month off the top. It’s not anything new.

Do it NO MATTER WHAT.

I don’t care if you made $100 after taxes this month. Save $10 of it.

IT’S NOT THE AMOUNT THAT MATTERS. IT’S THE HABIT.

If you instill the habit, time will be on your side. You won’t miss the money when it’s the FIRST thing you put away. You’ll start growing a nice cushion. It will give you peace of mind, give you a sense of control that you’re mastering your money, and help make you find more ways of making money if you find yourself short after saving. Automate the process so you won’t miss it.

You spent life energy to get it. Part of it is yours to keep.

Rainy days will come. When they come, you’ll be glad you did this. 10% - Investing.

When people hear the word invest, they think of vehicles like the stock market, 401k, Roth IRA, etc.

Not in this case.

What I mean by investing in this case is one of two things:

1. Invest in skills, knowledge, contacts to help you increase your earning ability as an employee.

2. Invest that money by saving it until it proves to be enough seed money to launch a new business you have in mind.

These two investments will return FAR greater returns than the stock market.

If you update upgrade your skills, knowledge, and contacts, you can get a promotion, find a better high paying job through a friend, pitch a great idea and get hired at a new position at a greater salary, and with the increased salary and experience you get, that return will pale in comparison to anything you get in the stock market.

If you choose not to do that but instead, save your money until it’s enough for some seed money for a simple business you have in mind, the sky’s the limit. The return you get on that business should it turn out great will be exponential compared to any return you get on the stock market.

Invest in yourself and your ideas.

It’s far better than investing in other people and their ideas because they won’t care as much about your money as you will. 70% - Spend it to meet all your needs.

This is pretty straightforward. 70% of your take home after tax pay will be spent on your mortgage/rent, car payment, insurance, utilities, food, gas, student loans, etc.

If you find you can’t cover all that on 70%, you’re going to have to make some sacrifices. Get an older car to save on monthly payments and insurance, get a roommate, cut the cable, eat out less, brown bag it to work, clip coupons, etc.

I won’t go into details here because it’s covered ad nauseum in all the personal finance articles out there.

And now, one of my favorite parts of this simple budget:

Set aside 10% for “I don’t care what Suze Orman or anybody else says, spend it guilt free, however you like, who cares so go buy that gadget you saw on TV, buy that purse you saw in the store, buy those shoes you saw in the magazine, whatever you feel like because nobody is going to make you feel bad for spending it as it’s yours and you deserve it because you’ve worked hard to earn it so screw what everyone else thinks because you’re going to enjoy it” type money.

So often personal finance advice is so “rigid” in the sense that people feel like it’s all about downsizing and saving, with nothing left in the bank for enjoyment.

It’s important to enjoy your money.

It’s important to look FORWARD to spending the money you’ve worked hard for on things you enjoy. It should be your reward.

But here’s the thing where people go wrong.

It’s their FIRST priority.

When the paycheck comes, they go out and celebrate.

No 10% saving off the top NO MATTER WHAT. No 10% for investing. No living on 70% for needs.

They have it all backwards or worse yet, they have no structure at all.

If you give this type of spending enjoyment its own “space”, you’re that much more likely to reign in that kind of spending and bring some discipline to your finances in the process.

When you have a category allocated to this kind of spending, you begin to look forward to budgeting because you’ll be inclined to stick to it to make sure you have this guilt free money available to spend.

You look forward to when the paycheck comes in, rather than see it spent on necessities and savings with nothing left over.

If you constantly do that and you don’t get to enjoy the money you’ve earned, you don’t really develop any drive to get more of it. There’s no incentive.

But when you start associating positive things with the guilt free money you get to spend, you’ll start to develop drive and incentive to get more of it, and the only way to get more of it is to add more value to more people, so spending this guilt free money and enjoying it will help you think of ways to do just that.

I recommend spending this type of money on experiences, not products. Products will leave you bored in a week.

Experiences will leave you with memories and stories for years to come.

Take a road trip to somewhere you’ve never been before. Take a helicopter tour over the city. Go out and survive in the wilderness with an experienced guide with nothing but a canteen of water and a knife for the weekend.

Money spent like this is a useful tool that can add a lot of spice to your life.

Miscellaneous Additions to the Budgets

Some people might be carrying debt and wonder where they should allocate money in the budget for that.

In this case, that money CANNOT come out of savings or investing.

It’s going to have to come out of the 70% needs, in other words, maybe live on 60% and allocate the 10% that’s left over to your debt or from the 10% guilt free spending (maybe par it down to 5% and apply the remaining 5% too to your debt).

What about giving 10% to your church or charity?

You could do that if you want, but there’s something much better you can do.

Give your time.

Anybody can write a check. Using your time to serve your community or organization is another way to give, and more often than not, more valuable.

Final Thoughts

Having the three rules of 10% saving, investing, and guilt free spending money will naturally force you to live BELOW your means. You won’t be living on 100% of your income, but at 70% or below it.

These numbers on the budget are not absolute.

You don’t have to live on 70%. You can live on 60% and allocate the 10% you save elsewhere where you deem fit.

You don’t have to save only 10%. You can save 15% or more.

You don’t have to spend exactly 10% as your guilt free spending money. It can be 8%.

The ONLY things that are IRON CLAD are that you MUST, AT THE VERY LEAST, SAVE 10% AND INVEST 10% of your AFTER TAX monthly income.

I also recommend you don’t go below 5% for your guilt free spending money. Give yourself a big enough cushion so you can look forward to budgeting to make sure you have it to spend.

The rest you can play around with but those numbers shouldn’t change.

If you keep the budget simple like this and create some “space” for you to enjoy your money, budgeting becomes really fun and really easy and you’ll definitely be able to greatly enjoy the process and results of sticking to it.

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