21 Jan Financial Rx: Make a balanced money plan
Clipping coupons and pinching pennies is not what will make you wealthy. Not to mention, it’s probably not what will help you cultivate an abundance mindset. That’s not to say that being resourceful and mindful of spending shouldn’t be part of your overall approach to money – it should! But major financial change comes from thinking much higher-level than that. It comes from having your money in balance and knowing how to construct a solid financial foundation so that you can build great things for your future.
Having your money in balance means that you can meet your basic needs, enjoy some extra “wants,” and save for the future without exceeding your income and getting into debt just to make ends meet. It means that you prioritize building your financial future, in the form of building your emergency fund and contributing to your investment accounts.
This comes from knowing what money you have coming in, how much you typically spend, and what your bills and other fixed costs are in a given month. This comes from having a proactive, rather than reactive, saving/investing plan.
Let’s break down what getting your money in balance would look like, step by step, as above.
1: You know what money is coming in and going out.
Make it happen: Review your pay stubs. Take note of your take-home (that’s after-tax) pay. Note any other sources of income. Review a few months’ worth of your bank statements and credit card statements, if applicable. What is your monthly spending? What bills and obligations do you have? How do you pay those bills?
2: You can meet your basic needs, make room for wants, and save/invest for the future.
Make it happen: Now that you have a clear sense of money coming in and going out each month, apply the 20-30-50 plan as a guideline to see where you might need to make some changes in order to balance. No more than 50% of your take-home pay is for the essential needs, no more than 30% is spendable money for wants, and at least 20% is for your financial priorities (paying down debt if you have it, saving, and investing).
3: You have a proactive, rather than reactive, saving plan.
Make it happen: Now that you have the 20-30-50 guidelines in mind, it’s time to decide where that all-important 20% comes from. Make it easy and automatic: set up an automatic transfer to deposit a set amount into your savings as soon as each paycheck hits your regular account. This way, you build your future without even thinking about it. If you wait until the end of the month to save “what’s left over,” there are always too many reasons not to save.