Healthy Spending Looks Like 50/30/20
We are not taught what healthy spending looks like (or at least I wasn’t until a few years ago). Here are a few things that I find to be helpful and important to know in order to maximize what's left after we pay taxes.
50/30/20 Rule (from the book ALL YOUR WORTH by Elizabeth Warren & Amelia Warren Tyagi)
In an ideal world, balanced spending looks like, 50% of your take home pay goes to needs (housing, transportation, food, childcare, insurance, mandatory debt paydown), 30% goes to wants (all the fun things that bring you joy), and 20% goes to savings (near term emergencies, intermediate term goals like a home, car, education, wedding, retirement, and 12% of that is retirement). Following this formula has helped me to stay afloat since becoming unemployed.
Basic Budgeting Tips (from Manisha Thakor, The Basics of Budgeting lecture)
They say a common problem area when it comes to budgeting and spending is needs, so I figured these 4 tips from Manisha Thakor might be good to know:
You can comfortably afford a home three times your household income (so if you are making 50k, you can afford a 150k home)
You can comfortably afford a car that is a third of your income (so if you are making 60k, you can afford a 20k car)
Kids cost $10,000 a year on average, without education
You would not want to take on more in student loan debt than you think you will make on average over your first ten years out of school (so don’t take out 85k in student loans if you know you won’t be making an average of over 85k over your first ten years out of school)
Your Assignment: Review your income after taxes for an average month. Calculate how much you typically spend on needs, wants, and savings and compare your results to the rule (50% needs, 30% wants, 20% savings). What are your current percentages? Are you satisfied with your numbers? Write down one action step you can take this week toward balancing the ratio in ways that support your financial goals.
Joy-Based Spending (from Manisha Thakor, Joy-Based Spending lecture)
Finances can be a source of freedom or limitation depending on how you manage your money. The way to true wealth and financial stability is by tracking your cash flow and making sure that it is going towards the things that bring you the most joy. Because if it doesn’t bring you joy, then what’s the point?? When you make money you are making it in exchange for your life's energy. When you spend your money you are spending your life's energy. So let’s make sure your money is going towards the things that bring you the most joy.
Your Assignment: One way to do this is to write down everything you spend money on for a month and highlight everything on that list that brought you joy or lit you up from the inside out. Ask yourself of the things that you didn’t highlight, do I still need this? Can I negotiate a better price for it? How many hours of my life’s energy am I spending on this? Do I really want it?
Try these out for yourself, and let me know what comes up! Do you consistently spend your money on something that doesn’t bring you joy? What are you investing in that DOES bring joy to your life?
I am extremely grateful to have learned these vital finance frameworks and much more through the Institute for Integrative Nutrition’s Heath Coach Training Program. For the month of May, you can receive 50% off the Health Coach Training Program using my discount code: TREVONNEHOMER20.
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💚Trev