Sarahritchie17 Who wants to have more money? Don’t we all? And yet, I feel like it’s still taboo to talk about it—especially for women. Most things I’ve learned about money and investing has come from white males, and I feel lucky to even be able to participate in the conversation. Is it just me that feels this?
Well, regardless, I want to start the conversation. I acknowledge that I’m not an expert in personal finance, but I do think that I’m already doing pretty well for myself. I save or invest approximately 40% of my paycheck. In the first 6 months of this year, (despite the economic downturn resulting from the COVID-19 pandemic), my financial assets (money in the bank and invested in the stock market) increased $20,000. My annual salary is $64,044. (As an active duty military member, that’s published on the internet, so it’s no secret.) I’ll save you the math. 6-month salary would be $32,022, and 40% of that is $12,808.80.
So I saved way more than 40% then, right? No. That’s the power of investing your money. Interested? Read on.
The key to growing your wealth is being intentional with your money. It takes great intention to choose the right investments and it takes great intention to keep yourself from that extra $5 latte that you know you didn’t need today.
We’ll get into how to start investing in a later post, but we have to build a foundation first. Growing your money starts with building good money habits, and that starts with knowing where your money is going. Here are 5 easy steps to start budgeting today.
- Track your spending for a month.
There are two ways you can do this. Method one is to document every time you spend money. Keep a daily log of every purchase you make, and it’ll only take a few minutes each day. Method two is to sit down at the end of the month and go through each of your bank accounts and credit card accounts and list every purchase on a clean sheet of paper. The key here is to write down each item as a new line. We’ll add it all up later, but if you write it all down, you’ll see not only how much you’re spending but also how often you’re pulling out your credit card. It is so much easier for us to spend money on credit than it is when you use cash because you subconsciously detach the monetary value from it. Think about it… isn’t it easier to make a $100 purchase on a card then to hand someone a Ben Franklin? I think when you hand-write out every dollar you spend, it has a similar effect. You should track your spending for at least one month, but some months you’ll spend more than others, so I recommend tracking your spending for three months and taking an average of the three. - Don’t forget rent.
And other recurring charges like subscriptions—Netflix, Spotify, etc. Especially if you’re tracking your spending daily, remember to also count anything you have set to auto-pay. Often we set subscription purchases to automatically pull money from our accounts. Even though things like rent are kind of necessary and out-of-your-control expenses, you still have to factor them into your budget. - Write down all your income streams.
Once you’ve tracked your spending and figured out all the things you spend money on, you can really start to build your budget. Take a fresh sheet of paper or Excel doc or use the template at the bottom of this post and write down all the ways you make money. How much money comes into your bank account each month? Do you have a part-time job or side-hustle in addition to your full time job? Do you work a bunch of different part-time jobs? Do you get paid by the hour, and if so how much do you make on average per week (then multiply by 4)? Once you’ve listed out your streams of income, add them all together. Simple so far, right? - Fixed expenses vs. variable expenses vs. discretionary expenses.
Next, go back to your spending tracker. Look for fixed expenses first. Fixed expenses are things that you have to pay every month and that cost the same amount every month, for example rent or a mortgage, cable, or insurance. List all these things along with their dollar amounts.
As you start to transfer your expenses from your spend tracker to your new budget, cross them off your spend tracker as you go.
Next, look for variable expenses. In this category, you’ll put all the things that you have to pay each month, but that change in cost month-to-month, for example your water bill, energy bill, or groceries. Make a good estimate of how much each normally costs and write down that number—use either an average or the highest amount it’s cost you over the past year. Writing the highest amount gives you more assurance you won’t run out of money to cover the bill. You can consolidate line items into categories here. For example if you went to the gas station 3 times this month, add those together and just put gas on your budget as one line item.
Lastly, look for discretionary expenses. These are things that you bought but don’t really need to survive, for example dining out, shopping, or entertainment. Everything you have left on your spending tracker should fit into this category. If it doesn’t, go back and add it to the fixed expenses or variable expenses categories.
Once everything is crossed off your spend tracker, add up all your expenses. Hopefully this number is less than your total income, but if not, you can work on it, and this is where you start! - Increase savings or investments.
Once you’ve filled out your budget sheet, subtract total expenses from total income. If this comes out to be a negative number, look at all your expenses and try to find places you can cut back. Could you eat one less meal out per month, could you cancel that subscription you don’t really use, could you use the free version of that app instead? Every little thing adds up here and small progress will start to build good money habits. Even if your income minus expenses comes out positive, you can still do some analysis on your expenses to see where you may be able to cut back.
You’re goal here is to have 20% of your paycheck remaining to save. Once you start saving 20% of your pay, you’ll want to build up a “nest egg.” This nest egg is your financial peace and security. Depending on your personal situation, you should have 3-6 months worth of expenses in your savings account. (I didn’t make this up, I’ve heard it recommended by numerous experts.) When you have a good nest egg, you’ll be able to start using that 20% to invest. Too many people keep building their savings which only make less than 1% interest. Instead, once you have 3-6 months of expenses saved, start putting money into the stock market which, on average, will grow 8-11% per year. Make your money start working for you. More to come on how I started investing, the mistakes I’ve made (so far), and recommendations on where to start.
For now, here are some templates to get you started.
Dang, that was a long post. Congrats if you made it to the end. I’ve been excited to share some money tips on the blog for a while now, but I hope I didn’t bore you with this first one. I think a huge part of empowering others is to have conversations about money, and my goal is to simplify the complex aspects of personal finance and make it approachable so anyone can have access to building good money habits.
If you like what you read here, follow @genuinesunshineblog on Instagram and look for new posts here at genuinesunshineblog.com every Sunday to start your week with sunshine!
Cheers!
Sarah
