Tag Archives: expenses

Checking Up On My Goals

One month ago, I turned 30. Much to my surprise, I didn’t wake up the next day feeling like a stiff old man. In fact, I didn’t feel a day older than 20.

A day prior to this milestone birthday, I published a list of 30 goals I hope to achieve in the next year. Yesterday on Twitter, Staci – @Streamline365 – checked-in and inquired about my progress, which made me very happy. As I have written in the past, I have a strong desire to both help others with my blog while also seeking accountability for my actions and pursuit of my goals. So, thank you, Staci, for calling me out!

With that said, I offer a quick check-in on the progress toward goal achievement one month into my 30s.

INVESTMENT GOALS
1 – Max out both of our IRAs for 2016. $11,000 total investment.
PROGRESS: None to report, but that will change in September.
2 – Invest a minimum of $2,000 with Fundrise.
PROGRESS: I am going back and forth on which Fundrise option I wish to pursue, the Income or Growth eREIT. Both options, though different, are enticing. I had planned to dive in during the month of July, but a few unexpected medical and personal expenses proved to set us back in this regard. The current plan is to make a decision and pull the trigger in late August or early September.

Related Post: The Fundrise eREIT: Accessible Real Estate Investing for the Average Investor

3 – Grow my overall account value with Betterment.
PROGRESS: None to report.
4 – Increase our overall net worth by 50%.
PROGRESS: I have begun tracking our net worth on a more regular basis, so that counts as progress, I suppose. According to Personal Capital, our net worth rose by 1% in the past 30 days. Ho hum.
5 – Set a target date for early retirement and formulate a plan to get there.
PROGRESS: Mrs. Superhero and I have had several discussions about our retirement options and plans. More specifically, we have defined our vision of what early retirement will look like for us. I intend to write about this in the future. With any luck, we may be able to narrow down a specific target date in the next few months.

HEALTH GOALS 
7- Lose 10 pounds by September 1, 2016.
PROGRESS: In the midst of birthday and anniversary celebrations, I gained 4 pounds. Oops!
8- Run at least four times per week.
PROGRESS: I’ve been consistently running twice per week. Time to step it up!
9- Weight lift at least twice per week.
PROGRESS: None to report.
10- Implement Meatless Mondays on a regular basis. This will represent a health goal as well as a budgetary goal (decreasing our grocery budget).
PROGRESS: Success! I miss meat every Monday, but this goal has been a good one.

FITNESS/RUNNING GOALS
11 – Run an unsanctioned half marathon in the month of July. This will help me to have a target for getting myself back in excellent running shape after a year of inconsistent training.
PROGRESS: I have one more week to achieve this one. Chicagoland has been an inferno lately, so I might not be able to squeeze this one in.
12 – Run a sanctioned or unsanctioned marathon in August.
PROGRESS: This remains a big stretch goal. Time will tell
13 – Run a sanctioned marathon in October.
PROGRESS: I have looked into a few options and am narrowing them down based on my calendar.
14 – Begin training for and compete in the Artic Frog 50K scheduled for December 2016; definitely a stretch goal!
PROGRESS: Remains a big stretch goal.
15 – Run a 5:30 mile. I haven’t been able to do this since I was 18; my best has been hovering around 6:05 for  while now. Nothing like jumping in the time machine to prove I’ve still got it!
PROGRESS: Also a stretch goal.
16 – Shoot hoops in the driveway at least three times per week. Mrs. Superhero surprised me by taking me out to pick out a basketball hoop for our driveway as my birthday gift a few weeks ago. I intend to put it to great use.
PROGRESS: The basketball hoop has been my favorite birthday gift in years. I love getting out and shooting around, even if for a few minutes, as a break and a means to clear my head.

BLOG GOALS
17 – Reach 15,000 Twitter followers prior to turning 31.
PROGRESS: As of today, I have 4,177 followers.
18 – Boost my Alexa ranking into the top 200,000 globally. This is part of the Yakezie Challenge.
PROGRESS: As of 7/24/2016 – Global: 628,956. US: 80,587. I’m thrilled with this progress!
19 – Break into the top 100 on the Modest Money Top Finance Blogs List prior to turning 31.
PROGRESS: Currently sitting at 271.
20 – Continue to publish 2-3 new articles per week while also pursuing additional guest posting opportunities.
PROGRESS: Success. In the past few weeks I have been fortunate to guest post on Budgets Are Sexy and Distilled Dollar, and I have another guest post slated on Millennial Moola this week. Thank you to J. Money, Matt, and Travis for these great opportunities!

CAREER GOALS
21 – Decide what I want to do with the next chapter in my life.
PROGRESS: I anticipate completion of my real estate licensure very soon, and the new school year kicks off mid-August.
22 – Join a real estate brokerage and close my first real estate transaction in 2016.
PROGRESS: See above.
23 – Reach my commission goals for my current consulting role.
PROGRESS: None to report.
24 – Begin laying the groundwork for writing my first book.
PROGRESS: I’ve jotted down some foundational ideas.

BUDGET GOALS
25 – Reduce discretionary spending by 10%. We can learn to be happy with less. This will be a primary key to achieving our investment goals.
PROGRESS: We reduced our restaurant allotment for the month of July.
26 – Include Mrs. Superhero more in the formulation of our goals. To her credit, Mrs. Superhero is great at supporting my dreams when they are wise and shooting them down when they are stupid. I would like to be careful to involve her more when strategizing.
PROGRESS: Mrs. Superhero and I have scheduled more frequent budgeting sessions recently.

LIFESTYLE GOALS
27 – Visit Nashville, TN for vacation and do our “Debt Free Scream” on the Dave Ramsey Show.
PROGRESS: Tentatively planned for March 2017.
28 – Go on three vacations – one in the fall (hopefully Las Vegas), one in the spring of 2017 (see Goal 27), and one in the summer of 2017 – and plan them utilizing travel hacks and deal hunting techniques.
PROGRESS: Aiming for Las Vegas in October!

RELATIONSHIP GOALS
29 – Take Mrs. Superhero on one date each week. Sometimes this will be simple, and other times it will be more elaborate.
PROGRESS: Success. It has been the highlight of each week to spend dedicated time with Mrs. Superhero.
30 – Spend more quality time with my two nephews and new niece. Also, call my siblings to catch up on a monthly basis.
PROGRESS: Success. I’ve especially enjoyed bonding with my niece, who has to be the most adorable 4 month-old in the world!

Uncle FinanceSuperhero and Charlotte
Uncle FinanceSuperhero and Charlotte

How has your July progressed? Are you on track to meet your goals?

20 Budgeting Tips for Singles – A Bachelor’s (or Bachelorette’s) Guide

Last week, the state of Illinois finally passed what I would describe as a “Band-Aid” budget. While politicians largely celebrated this move and patted themselves on the back, their budget does very little to solve the gaping wound that is the state of financial chaos in which Illinois currently finds itself.

As I read the headlines and a few articles, I marveled at the difficulty the legislature faced in passing a budget. As you may or may not know, Illinois recently went an entire fiscal year without a budget. This standoff made previous budget delays (18 days in 1991, multiple delays of several weeks in the 2000s, and the bitter standoffs of recent years) look like small blips on the radar.

While Governor Rauner and Speaker Madigan set aside partisan gridlock long enough to pass a budget, public schools, state universities, and social service agencies are from celebrating. To the detriment of the citizens of Illinois, the finger pointing between Republicans and Democrats will surely resume and intensify in the next months.

Right around the time that Governor Rauner was delivering his press conference regarding the new budget, I sat down to review my planned budget for July 2016. Since September 2009, I have created a unique monthly budget using Gazelle Budget, the online software platform created Dave Ramsey’s team at Ramsey Solutions. That makes 71 unique budgets. It felt good to add yet another accomplishment to the mental list of ways in which I put the state of Illinois to shame.

MY FIRST BUDGET

As I often do when completing a budget, I took a look through the archives to see how Mrs. Superhero and I have come. My trek brought me back to September 2009, the month in which I created my very first budget.

In September 2009, I was a newly-employed, engaged bachelor, living independently for the first time in my life. Less than one week before the new public school year started, I accepted a job offer to teach music about 25 miles away from my university campus. With a week to prepare, I scrambled to locate housing, sign my contract, and prepare for a radical life change.

At the time, I had barely a tiny inkling of how to responsibly manage my money. I had recently read The Total Money Makeover in record speed, but I didn’t know the first thing about budgeting an “adult” paycheck. This was going to be the first time I had ever earned a paycheck which included a comma in the amount field!

After reading about Gazelle Budget (which is being replaced soon by EveryDollar), I purchased an 18 month membership, which included access to all three hours (ad free) of the Dave Ramsey Show podcast, for $89.95. Moments later, I created my first budget.

In all its glory, my very first monthly budget, from September 2009
In all its glory, my very first monthly budget, from September 2009

I began by projecting my total net income for the month, $2,357.29 in total. In that moment, I recall feeling pretty wealthy. I continued by inputting my desired charitable giving ($236 – 10%), rent ($400 – I rented a room in a two-bedroom condo from a friend-of-a-friend), food ($305 – for groceries and restaurants), and my debt obligations ($50 car payment and $200 credit card bill). From that point, I filled out the budget with an estimate of utilities, transportation (gas, car insurance, and routine maintenance), clothing (new work clothes and change for laundry), personal spending (spending money blow money Starbucks fund, books, gifts, hair cut, toiletries, and the Gazelle Budget subscription), and savings (emergency fund and honeymoon fund).

As you can see above, my projections for spending (middle column) were not entirely accurate when compared with my actual spending (leftmost column) at the end of the month. In fact, despite projecting a zero-based budget, I spent more money than I earned in September 2009.

This was hardly a Superhero effort.

On the other hand, the percentages of my categorical spending mimicked responsible spending.

Budget Percentages 1

Budget percentages 8-11
Categorical budgeted spending as a percentage of net income, September 2009

THE TROUBLE WITH PROJECTIONS

For the first full month of living on my own, I updated my budget on a daily basis. I kept a stack of receipts for all cash purchases and utilized internet banking to reconcile all other transactions. Yet despite my diligence, I was still brand-new to the process of budgeting.

As you can see below, I overspent considerably on food and personal spending; I had budgeted a combined $572.29, approximately 24% of my net income, but at the end of the month, I had spent a combined $761.58, approximately 32% of net income.

When I broke these spending figures down further, I discovered that I had spent $156.50 at restaurants and $80.77 at Starbucks.

Ouch.

My First Budget - Spending
20 TIPS FOR THE BACHELOR’S OR BACHELORETTE’S BUDGET

I chose to present the above figures for two primary reasons. First, I wanted to prove that it is possible to build and maintain a monthly budget as a single person. Second, I wanted to be fully transparent about my early mistakes.

Yes, creating a budget is not always easy. It isn’t the cool thing to do, especially as a young 20-something fresh out of college. Even at age 30, I can still recall the temptation to throw caution to the wind and live it up. Heck, I almost went out and leased a car!

However, I still recall one of the most powerful motivators for a 20-something single: the desire to prove one’s independence. Creating a budget is one of the best ways to set out to accomplish this goal and appear to be an adult. If you don’t manage your money responsibly, you will surely appear to be a child to you parents and extended family.

To win with money as a bachelor or bachelorette, follow these 20 tips.

20 BUDGETING TIPS FOR SINGLES - TW

1. Share costs with a roommate.

In my case, I avoided spending $1,000 per month for a one-bedroom apartment and spent $400 to rent a home in a two-bedroom condo. By sharing costs in this manner, I avoided spending 40% of my net income on housing costs.

Housing is by far the biggest budget buster for the average bachelor or bachelorette. Spending within this category can be a difference-maker.

2. Gather an accurate picture of your monthly debt obligations.

When you are just starting out, you will feel the temptation to delay examining your debts, particularly if your student loans are still in deferment. Avoiding your debts will not make them go away, so gather this information, including total principal, interest rates, minimum payments, and loan terms for each debt. If you’re unsure or unclear about any debts, contact the appropriate customer service department right away. Also, you should check your credit report; remember, this can be done free of charge once per year with each of the major credit reporting bureaus.

3. Prepare your own meals and cook at home as much as possible.

As a single young adult, preparing your own meals will accomplish two goals: you will save money, and you will not gain weight eating low nutrition/high calorie fast food. As an added bonus, you will be able to host your dates for dinner and impress them with your fine culinary skills. They’ll expect Ramen, and you’ll blow them away with shrimp creole!

Ladies, don’t forget, the way to a man’s heart is through his stomach.

4. Maintain a college lifestyle, at least in terms of spending.

When your first paycheck rolls in, you will immediately experience the temptation to buy everything in sight. If you establish an unreasonable level of spending out of the gate, you will set yourself up for failure. As much as possible, continue to live a college lifestyle (i.e. behave as if you are poor), within reason, of course.

5. Do not go out and buy a new (or new to you) vehicle.

You need to get used to living on a budget first in order to determine what you can or cannot afford in a new vehicle. Don’t allow pride and vanity to influence your decision-making process. If your current vehicle gets you from point A to B, it’s a keeper – at least for a few months.

6. Invest in a decent coffee maker with a timer function and brew your own coffee at home.

I learned this the hard way when at the end of my first budgeted month I had spent $80.77 on coffee on my way to work. I had a decent Mr. Coffee coffeemaker, but it didn’t have a timer feature. If I happened to be running late to work in the morning, I resorted to a quick Starbucks stop, which cost me significant money without adding any perceived value (neither happiness-wise nor nutritionally speaking).

Nothing beats the sweet aroma of morning coffee, especially when you brew it yourself and save money in the process

Mr. Coffee
Nothing beats the aroma of freshly-brewed coffee in the morning – and it saves you money!

7. Stay in.

Fortunately, I did a good job of this. My wife-to-be and I enjoyed cooking dinner at my condo and watching reruns of The Office. I know that many single people will feel the temptation and be pulled into the expensive night life scene, but do so within reason. Invite friends or your significant other back to your place, where food and drinks are cheap.

8. Find affordable dates with Groupon and Restaurant.com . I’m not even sure if Groupon and Restaurant.com existed back when I was a bachelor, but taking advantage of them today is a key part of our dining out experience. With either platform, you can purchase certificates for what is usually a fraction of the value, which allows you to realize significant savings and still enjoy a night out. The most common Restaurant.com offer is $10 for a $25 gift certificate. Check out the Restaurant.com offerings in your area by following the link and entering your zip code.

9. Build an emergency fund as quickly as possible.

As a young single person, building an emergency fund is the definition of adulting. Without an emergency fund, you will face unexpected expenses and be forced to swipe your credit card. Or worse yet, you may have to beg your parents for a loan or a gift.

10. Begin charitable giving right away.

While I have always given 10% to charity and missions organizations, I know this isn’t for everyone. If you’re not a natural giver, start small. Even $1 or $10 per month will benefit worthwhile organizations. If you’re not into structured giving, pay it forward and purchase the coffee or meal for the driver of the vehicle behind you in the drive-thru.

I strongly believe that regular, consistent giving is a key to winning with money. The act of giving teaches you that money is not an asset to be horded, stockpiled, wasted, or worshipped, but a tool to help yourself and others.

11. Strive to create a zero-based budget every month.

Remember, you will fail at this at first. Over and over and over. However, I found comfort in a Dave Ramsey quote during my initial months of struggle with my budget:

Adults devise a plan and stick to it. Children do what feels good. -Dave Ramsey

12. Accept that your budget projections will rarely be perfect.

On a related note, embrace your budget mistakes as they occur. Be willing to adjust your budget several times during the first several months.

13. Share your budget with a friend who is wise with his or her finances.

Accountability is helpful for everyone. It is part of the reason why I write this blog. A good budget is not inflexible.

14. Tell yourself every day that instant-gratification isn’t all that gratifying.

A few days ago, I read that the average person only waits 5 seconds for a web page to open before becoming irritated and moving on. Clearly, we live in a culture which embraces speed and instant results over patience.

You will need to learn to delay your desires in order to maintain a successful budget. Make a plan and stick to it.

15. Don’t worry about investing money right out of the gate.

In the personal finance blogging community, the suggestion to delay investing for retirement is utter blasphemy! However, I believe that there are better uses for your first months of pay. Make sure your budget is in order, build an emergency fund, and take time to research your investment options. When the time comes to invest, look into low-cost options through Betterment and Motif Investing. You will be glad that you waited.

16. Identify your values and be sure that your budget follows them.

If you’re not sure where to start with values-based budgeting, check out my two part series on budgeting with values in mind:

Values and Budgeting – Part One

Values and Budgeting – Part Two

17. Once you’ve identified your values, create written goals that you wish to accomplish.

Writing V-SMART Goals is the best way to accomplish your goals.

18. Be transparent with your friends and family about your budget.

It is OK to explain that you are striving to manage your spending responsibly. In fact, if you keep your budget goals a secret, it will be more difficult to stick to your budget, as co-workers will invite you out for happy hour drinks and apps every Friday. Just be up front and honest.

You can still have a social life on a budget. But be willing to say "no."
You can still have a social life on a budget. But be willing to say “no.”

19. As follow-up to number 18, be willing to say “no.”

If you want to live on a budget and win with money, you will likely hurt people’s feelings from time to time.

20. Avoid making any purchases on impulse.

If you are considering a sizeable purchase, write it down and check back again in thirty days. See my recent piece, The Thirty Day List, for a step-by-step process on delaying purchases.

Note: This piece contains affiliate links. FinanceSuperhero only recommends products designed to save readers money.


Readers, what budget tips do you have for singles?

Protect Your Future With Sinking Funds

My earliest job as a child was mowing the lawn. One hot Michigan summer afternoon, Superhero Dad decided it was about time for me to contribute to yard work beyond raking leaves in the fall. After a few minutes of coaching on how to prime the gas line, start the engine, empty the mulch bag, and operate the self-propelling mechanism, Dad headed inside and left me to get to work.

Our lawn was average for our neighborhood: one-third acre in size, trees and other obstacles galore, and dusty. I quickly learned to hold my breath when emptying the bag into the backyard compost pile.

After approximately two hours of navigating countless twists, turns, and bumps, and contemplating the treasures I could purchase with my new income, my work was complete. Like any self-respecting nine-year old, I marched up to Dad, who was reading the newspaper in his recliner.

“I’m done,” I said, extending my open hand in anticipation of a rich payment.

“OK. Let’s go take a look,” Dad replied.

After touring the yard and noting the deficiencies in my work, the long-awaited moment finally arrived. Dad reached into his pocket and presented me with a crisp $5 bill.

I don’t recall experiencing any exuberant emotion at the time, though in hindsight, $5 was probably a fair lawn-mowing rate for a nine-year-old boy in the mid-1990s. But I do remember walking to my bedroom, closing the door, and slipping Mr. Lincoln into a manila envelope in my night stand.

Envelopes Everywhere

Like many of my earliest financial lessons, I learned the practice of safe-guarding my money in envelopes from Superhero Grandpa. Grandpa had envelopes for everything, each with a hand-written label, secured behind the solid walls of his safe.

I didn’t know it at the time, but several of Grandpa’s envelopes were intended to save for future purposes. Among the purchases made from one of Grandpa’s envelopes was one of the last vehicles Grandpa purchased: a brand-new 2008 Honda Accord EX-L. The story of how Grandpa walked into the showroom with a brown bag full of cash one day after test driving an Accord is one of my all-time favorites.

My 2008 Honda Accord EX-L
My 2008 Honda Accord EX-L

One year after Mrs. Superhero and I were married, Grandpa approached me and asked if she and I would be interested in buying the Accord; he had already gotten the itch to purchase a new vehicle. We were desperately in need of a fuel-efficient vehicle and had been saving money for months.; yet, at the time, purchasing the vehicle would have been a bit of a stretch.

After a few months passed, we finally had enough money saved to purchase the car. My hand trembled a bit as I sat down to write Grandpa the largest check I had ever written (at that time).

“Can you take me out for a ride in your new car?” Grandpa asked me.

“Of course,” I said. “Where are we going?”

“The bank,” he replied.

Moments later, we arrived at the bank. What I anticipated would be a short, unremarkable trip turned out to be lengthy and memorable.

“I want to cash this check,” Grandpa informed the teller.

The teller examined the check and flashed a stunned look, first at Grandpa, then at me.

“Sir, I have to recommend against keeping this much cash on hand. Would you like to make a deposit into your savings account?” she asked.

“No. I want the money,” Grandpa retorted.

After the teller’s acquiescence and subsequent counting of many $100 bills, Grandpa and I exited the bank. I was terrified that we would be jumped, robbed, and left for dead in the parking lot. Luckily, my worries were unfounded, and Grandpa and I arrived safely back at the house.

True to form, Grandpa immediately removed his new stack of cash from the teller envelope, placed it in a manila envelope, and locked it in his safe, but not before counting it once more, just to be sure it was all there.

The Sinking Fund: An Update to Envelopes

I did not know it at the time, but Grandpa had just added to his always-growing portfolio of sinking funds.

For readers who may be unfamiliar with the term and its application in personal finance, a sinking fund is an account designed to save for specific future purchases. A sinking fund is different from an emergency fund, as its contents are earmarked with an anticipated purpose, while an emergency fund exists to cover unanticipated expenses.

While Grandpa’s approach was commendable, it is advisable to maintain sinking funds in a savings or money market account which is separate from your emergency fund. If you are able to meet minimum balance requirements, it may even be wise to open separate accounts for each sinking fund. You do, however, want to be sure that your money is not eaten away due to senseless fees.

As an alternative, provided you have a sufficiently-funded emergency fund, you could invest your sinking fund money in CDs if you know you’re not likely to need it during the term of the CD. You should be certain that investing the money and losing access to it for the duration of the term will not cause undue hardship.

The Sinking Fund Test: Do I Need a Fund For _____?

The number and type of sinking funds you maintain should be tailored to suit your individual circumstances. The following guidelines and questions are intended to spark careful thought and consideration.

What items are nearing the end of their anticipated utility? (In other words, what items are likely to breakdown or require repair in the next six months to five years?)

What degree of difficulty would be posed if you were expected to live without these items for a set time period?

What upcoming purchases and expenses can you reasonably anticipate and begin saving for with a sinking fund? (Hint: Christmas is in December this year!)

In summary: If an item is likely to soon need replacement or repair, you need a sinking fund for it. If you can’t live long without this item, you need a sinking fund for it. If an expense is anticipated to be due within the next six months to five years, then you need a sinking fund for it.

FinanceSuperhero recommends that you organize your sinking funds based upon priority (Ask: What is likely to break first?) and fund them according to your ability to do so each month. Develop a rough calculation of the projected cost for the item in question and divide that total by the number of months remaining until the expense is anticipated; this is the amount you should budget to save within the sinking fund each month.  Again, place funds in a simple money market account or high interest bearing online savings account, depending upon the amounts in question.

Among many other possibilities, the following items deserve your consideration when developing a list of necessary sinking funds:

  • Vehicle replacement
  • Christmas and birthday gifts
  • Vacations
  • Home repairs (roof, HVAC, sump pump)
  • Home renovations (basement renovation, kitchen and bathroom remodeling, sizeable landscaping or the addition of a deck or patio)

Readers, do you utilize the sinking fund approach? For what types of purchases do you maintain sinking funds? Where you do maintain your sinking funds?

A Detailed Guide to the Zero-Based Budget

In this post, we will take a detailed look at how to create a zero-based budget.

 A zero-based budget is a budget in which all income is allocated to a budget category with no remaining unused funds.

At this point, you should realize that you can’t afford to go another month without a budget. It could be the difference between one day reaching financial freedom and remaining in bondage to debt. It could leave you trapped working a job you hate just to pay the bills. It could diminish your happiness. If you don’t feel urgency and understand the importance of a budget, thus requiring more convincing , start here.

Methods of Budgeting

Depending on your personality and degree of tech-savviness, you may wish to create a budget the old-fashioned paper-and-pencil way. You may prefer using Excel, or even an automated program, such as Mint, YNAB, EveryDollar, or PersonalCapital.

If you are a budget rookie, I cannot understate the importance of creating a budget and crunching the numbers yourself without the benefits of an automated program, at least for your first few budgets. I highly recommend the pencil-and-paper or Excel methods for your first few budgets simply because these methods will force you to pay attention and be precise.

Budget Basics

Before we get into the specifics of your budget, let’s review some pertinent basics.

  • You need to create a new, unique budget at the beginning of the month, every month. Why? Some expenses occur on a bi-monthly or quarterly basis, and you will want to capture this within each unique budget you create. Remember, some expenses are fixed, while others vary from month to month.
  • Your budget should be based upon your net income (after state and federal taxes, employer deductions, and insurance premiums). Whether you are paid bi-weekly or weekly, this figure, too, will vary from month to month.
  • You should create a budget which utilizes categories. I personally use the following categories, which are recommended by Dave Ramsey. You should use the categories that represent areas of significant expense in your budget, delete those which do not, and add any pertinent categories which may be missing.

Giving/Charity

Saving

Housing

Utilities

Food

Transportation

Clothing

Health/Medical

Personal

Recreation

Debt

  • Within each category, your expenses should fall within the following typical ranges.

 

Category Recommended Percentages
Giving/Charity 0-10%
Saving 5-15%
Housing 25-35%
Utilities 5-10%
Food 5-15%
Transportation 5-15%
Clothing 2-7%
Personal 5-10%
Health/Medical 5-10%
Recreation 5-10%
Debt 0%

Sample Expenses Within Each Category

Giving/Charity: Tithes and offerings to church/religious organization, charitable donations

Saving: Emergency fund savings, retirement savings (401k, 403b, Roth IRA, Traditional IRA), college savings (ESA, 529), vacation savings fund, sinking funds

Housing: Rent, mortgage (including property taxes and insurance in escrow), home maintenance

Utilities: Electric, Gas, Water, Trash, Home/Mobile Phone, Cable/Internet, Home Security

Food: Grocery, restaurants, fast food, coffee and drinks

Transportation: Fuel, auto insurance, auto maintenance, bus passes, train tickets, Uber fares, tolls, miscellaneous transportation costs

Clothing: Includes shoes, outerwear, work wear, accessories
Personal: Discretionary spending, disability/life/identity theft insurance premiums, miscellaneous spending

Health/Medical: Insurance co-pays, prescription co-pays, miscellaneous medicine, gym memberships

Recreation: Movie tickets, concert tickets, sporting events, local/regional travel, miscellaneous recreation

Debt: Student loans, car loans, home equity loans, credit cards

The Specifics of a Budget

Before we proceed, it is important to note that your figures may or may not fall squarely within the categorical ranges previously mentioned. For example, if your Housing costs represent 24% or 36% of your monthly budget, this is not a serious problem. Please view the percentages above as suggestions for a healthy budget. Clearly, room exists for give and take, particularly if you are a very low or very high income earner, as long as your percentages add up to 100%.

Some of the categories above cover fixed expenses, such as Housing, Debt, and Utilities. Others address what we will call variable fixed expenses; you will spend money in each of these categories during a typical month, but the amounts may vary slightly from month to month. Variable fixed categories include Food, Transportation, Clothing, and Personal. Finally, the remaining categories, including Giving, Saving, and Recreation, are what we will refer to as discretionary expenses. You may choose to allocate money within these categories, but it is not mandatory for your family’s survival.

Note: Mrs. Superhero and I strongly believe that Giving is important, and we choose to include it as a fixed expense within our budget. Your values will dictate how you choose to handle this category in your budget.

Here is a sample budget based upon a $5,000 monthly income:

Category Dollar Amount Allocated Allocations as Percentage of Budget Recommended Percentages
Giving/Charity $500 10.00% 0-10%
Saving $250 5.00% 5-15%
Housing $1,500 30.00% 25-35%
Utilities $500 10.00% 5-10%
Food $700 14.00% 5-15%
Transportation $400 8.00% 5-15%
Clothing $150 3.00% 2-7%
Personal $500 10.00% 5-10%
Health/Medical $200 4.00% 5-10%
Recreation $150 3.00% 5-10%
Debt $150 3.00% 0%
Totals $5,000 100.00%

As you can see above, the total of all categories combines equals $5,000. This budget adheres closely to the recommended percentages, and it even manages to stay below the recommended percentage ranges in the Health/Medical and Recreation categories.

Creating Your Detailed Monthly Budget

In the previous section, we allocated targeted spending amounts based on our categories. Now, we will explore how to reconcile our actual monthly spending with these estimated allocations.

In order to utilize accurate expense figures, it is advisable to download copies of your monthly checking, savings, and credit card statements from your financial institutions. If you are doing a paper pencil-and-pencil budget, I recommend adding expenses by category using columns.

Once you have calculated categorical totals for the entire month, the final step is to add all categorical totals and compare the final sum to your allocated final sum. Again, in order to have a zero-based budget, these figures should be identical.

Possible Problems and Trends

As you are doing your first few monthly budgets, you are likely to encounter the following problems or trends:

  • Spending more than the allocated targets in one or more categories
  • Spending less than the allocated targets in one or more categories

Why? A budget is a rough prediction. Think of it as a rough draft of an essay. You will return to it and refine any errors at the end of the month. The previous mistakes you made will influence and impact your thought process as you create later budgets.

Two Serious Warning Signs and Solutions

The following are two warning signs that your budget is not working:

  • Warning Sign: You consistently spend more than the allocated targets in specific categories.
    Solution: Increase allocated funds for the category if you are within recommended ranges. If you are exceeding recommended ranges, implement measures to reduce spending.
  • Warning Sign: Your spending exceeds your income.
    Solution: Forgive me for shouting, but STOP OVERSPENDING! Stay out of restaurants, learn to like your old clothes, and ride your bike to save on gas. Alternatively, seek alternative streams of income.

Next Steps

Now that you understand the nuances of a zero-based budget, get started on yours today. A budget only takes a few minutes to assemble, but the rewards are potentially without limit. Getting on the right path, understanding your money, and controlling your money are keys to being a Finance Superhero. A budget doesn’t require sophistication, manipulation, or secret wisdom. It requires patience, intentionality, and a desire to be in control of your money.


Readers, how do you plan your monthly budget? Do you use automated software? Excel? Paper and pencil? How much time do you spend on your budget each month? Share your thoughts and burning questions in the comments section below.

Five Reasons Why Everyone Should Have a Budget

A few weeks ago, I was lamenting the cost of graduate school with a friend over coffee. I commented that I had no idea why so many people were willing to go back to school for an MA or MBA and happily load up on debt that would have to be factored into their budget.

Yup, I said the b-word. My friend winced, as if I had just kicked him in the shin under the table.

For reasons I will forever struggle to understand, the word budget is a major taboo in today’s culture. Of course, I have never let that fact deter me in the past, and I wasn’t about to let it in this conversation, either.

“You do have a budget, right?”

“No. . . Budgeting just isn’t my thing. Besides, I’m always going to have debt anyway. What’s the point?”

Sadly, this attitude isn’t all that uncommon today. Chances are, you have also had similar conversations with friends, relatives, co-workers, or maybe even your neighborhood barista.

This, my fellow Superheroes, is a tragedy. With proper budgeting, there is no reason that the average person today cannot retire a millionaire and live a life of financial independence.

Five Reasons to Budget

While there are far more than five reasons everyone should have a budget, today I will present five reasons. My intention is to make you think and simultaneously stir your emotions. After reading this, please do not go another day without having a budget in place for your family.

  1. A Budget is Easy to Create

I am convinced that the average person’s aversion to budgeting stems from the budgetary failures of both federal and state government units. They ask, “If they can’t figure it out, how am I supposed to do it?” In my home state of Illinois, for example, our elected representatives and Governor have consistently demonstrated an inability to play nice and do what is best for their constituents. Ironically, the Illinois General Assembly recently enjoyed a vacation after months of accomplishing nothing.

With a Superhero mindset, you can do much better. Let’s walk through the basics of a simple starter budget:

  • If you have an understanding of addition, subtraction, basic fractions, and can operate a calculator, you can do a budget. Grab a pencil, a legal pad, and get started.
  • List your income from all sources at the top of the page. I recommend using net income, commonly referred to as “take home pay.”
  • Gather information on your fixed necessity expenses: mortgage/rent, utilities, and medications.
  • Gather information on your flexible necessity expenses: food/groceries/toiletries, clothing, and fuel/transportation.
  • Gather information on your discretionary expenses: restaurants, entertainment.
  • Calculate the total of your expenses and subtract this figure from your total net income. If you are spending more than you are earning, something must change.  First of all, aim to reduce unnecessary discretionary spending. Next, explore ways to reduce/eliminate restaurants, save on groceries and toiletries, and formulate a plan to reduce fuel/transportation expenses through well-planned travel. If you have money remaining at the end of your budget, it can be used to build your emergency fund, pay off your debts, and give to organizations/individuals in need.
  • Lastly, examine your fixed expenses and explore all avenues to reduce them. This can be done by paying off debts, thereby reducing your monthly obligations, negotiating rent/refinancing your mortgage (especially if your mortgage is 3-5 years old, you may be missing out on historically low interest rates), and reducing your usage of utilities. Any additional cash you can save is equivalent to receiving a raise.

Note: I realize that this guide to a simple starter budget is basic. We will dive into the nuances of a more detailed budget in a future post. Your starter budget will be approximate. That is OK. The goal is for you to establish a wide lens view of your current income and spending. When assembling future, more detailed budgets, we will use budget software, such as EveryDollar, to add precision to our process. If you prefer, you can jump to this step rather than the old-fashioned paper and pencil method outlined above.

  1. A Budget Puts You in Control of Your Money

Superheroes, you work hard to earn your income. I know I do. Without a budget, it is difficult to keep your income inline. Each dollar you earn in your lifetime is like a tiny employee that is ready to work for you. You wouldn’t hire an employee for your department or business and fail to provide her with a detailed purpose and role. If you did, you would be a poor boss. Employees need guidance and structure to succeed, and your money is no different. Put those dollars to work by assigning them a unique role. That begins and ends with a budget.

  1. A Budget Requires You to Pay Attention to Your Money

With several Mr. Washingtons working for you, suddenly doing exactly what you tell them to do, things begin to change. Suddenly, you notice that your grande non-fat no whip latte costs you $7 each morning. You may even experience a bit of pain upon realizing that this equates to $35 per week and over $1800 per year.

Is this worth $1800 per year?

Noticing details like this is just the beginning when you maintain a monthly budget. And when you start to pay attention, innocent trips to the ATM don’t seem quite so innocent anymore. You begin to think twice before you spend because you understand the ramifications of departing from your plan, a point which segues nicely into the next reason to budget.

  1. Operating Without a Budget is a Missed Opportunity

Though the US government prints money like it is going out of style, you and I know that money is a finite resource. Each of us has a limited number of working years, and logically, our earned income is similarly limited as a result. Do not let any of it go to waste. You must be intentional to be successful.

Today, more and more people strive to out earn their stupid spending. They work long hours to pay for cars, boats, and summer beach homes, yet they are too busy working to enjoy the fruits of their labor. I am not condemning hard work, nor am I saying that you should not have nice things. However, as Chris Hogan puts it, “I don’t want nice things to have you!” If you do not have a budget, your hard-earned money is likely being wasted on buying things you don’t need to impress people you don’t even know. The longer you continue this way, the longer you are missing out on what Albert Einstein dubbed the Eighth Wonder of the World: compound interest. And in this case, being late to the party isn’t fashionable; it’s foolish.

For example, consider the following scenario: Ben and John are both 20 years old. Ben begins investing $250 per month in index funds, and he continues until he is 30 years old, at which time he never invests another cent, allowing compound interest to grow his money until retirement at age 59 ½. John decides to lease a vehicles for $250 per month during this same 10 year window, and wisely snaps out of it when he reaches age 30, at which time he begins investing $250 and continues until age 60. For the sake of argument, let’s assume that both gentlemen invest in similarly-performing index funds, which average a 10% return each year. Surely John must catch up to Ben? Take a look below:

  Ben’s Investments John’s Investments
Age Contribution Interest Balance Contribution Interest Balance
20 $3,000.00 $300.00 $3,300.00 $0.00 $0.00 $0.00
21 $3,000.00 $630.00 $6,930.00 $0.00 $0.00 $0.00
22 $3,000.00 $993.00 $10,923.00 $0.00 $0.00 $0.00
23 $3,000.00 $1,392.30 $15,315.30 $0.00 $0.00 $0.00
24 $3,000.00 $1,831.53 $20,146.83 $0.00 $0.00 $0.00
25 $3,000.00 $2,314.68 $25,461.51 $0.00 $0.00 $0.00
26 $3,000.00 $2,846.15 $31,307.66 $0.00 $0.00 $0.00
27 $3,000.00 $3,430.77 $37,738.43 $0.00 $0.00 $0.00
28 $3,000.00 $4,073.84 $44,812.27 $0.00 $0.00 $0.00
29 $3,000.00 $4,781.23 $52,593.50 $0.00 $0.00 $0.00
30 $0.00 $5,259.35 $57,852.85 $3,000.00 $300.00 $3,300.00
31 $0.00 $5,785.29 $63,638.14 $3,000.00 $630.00 $6,930.00
32 $0.00 $6,363.81 $70,001.95 $3,000.00 $993.00 $10,923.00
33 $0.00 $7,000.20 $77,002.15 $3,000.00 $1,392.30 $15,315.30
34 $0.00 $7,700.22 $84,702.37 $3,000.00 $1,831.53 $20,146.83
35 $0.00 $8,470.24 $93,172.61 $3,000.00 $2,314.68 $25,461.51
36 $0.00 $9,317.26 $102,489.87 $3,000.00 $2,846.15 $31,307.66
37 $0.00 $10,248.99 $112,738.86 $3,000.00 $3,430.77 $37,738.43
38 $0.00 $11,273.89 $124,012.75 $3,000.00 $4,073.84 $44,812.27
39 $0.00 $12,401.28 $136,414.03 $3,000.00 $4,781.23 $52,593.50
40 $0.00 $13,641.40 $150,055.43 $3,000.00 $5,559.35 $61,152.85
41 $0.00 $15,005.54 $165,060.97 $3,000.00 $6,415.29 $70,568.14
42 $0.00 $16,506.10 $181,567.07 $3,000.00 $7,356.81 $80,924.95
43 $0.00 $18,156.71 $199,723.78 $3,000.00 $8,392.50 $92,317.45
44 $0.00 $19,972.38 $219,696.16 $3,000.00 $9,531.75 $104,849.20
45 $0.00 $21,969.62 $241,665.78 $3,000.00 $10,784.92 $118,634.12
46 $0.00 $24,166.58 $265,832.36 $3,000.00 $12,163.41 $133,797.53
47 $0.00 $26,583.24 $292,415.60 $3,000.00 $13,679.75 $150,477.28
48 $0.00 $29,241.56 $321,657.16 $3,000.00 $15,347.73 $168,825.01
49 $0.00 $32,165.72 $353,822.88 $3,000.00 $17,182.50 $189,007.51
50 $0.00 $35,382.29 $389,205.17 $3,000.00 $19,200.75 $211,208.26
51 $0.00 $38,920.52 $428,125.69 $3,000.00 $21,420.83 $235,629.09
52 $0.00 $42,812.57 $470,938.26 $3,000.00 $23,862.91 $262,492.00
53 $0.00 $47,093.83 $518,032.09 $3,000.00 $26,549.20 $292,041.20
54 $0.00 $51,803.21 $569,835.30 $3,000.00 $29,504.12 $324,545.32
55 $0.00 $56,983.53 $626,818.83 $3,000.00 $32,754.53 $360,299.85
56 $0.00 $62,681.88 $689,500.71 $3,000.00 $36,329.99 $399,629.84
57 $0.00 $68,950.07 $758,450.78 $3,000.00 $40,262.98 $442,892.82
58 $0.00 $75,845.08 $834,295.86 $3,000.00 $44,589.28 $490,482.10
59 $0.00 $83,429.59 $917,725.45 $3,000.00 $49,348.21 $542,830.31

At age 59 and approaching retirement, Ben will have invested a total of $30,000 and hold a portfolio valued at $917,725.45. John will invest $90,000 over 30 years -three times what Ben invested-yet he will only hold a portfolio valued at $542,830.31! John never caught up due to the avalanche of compound interest that worked in Ben’s favor.

  1. A Budget is Freeing

When my friend claimed that a budget really wasn’t his thing, I immediately realized that he had never experienced the freedom that results from a fine-tuned budget. When you maintain a budget, you have the benefits of:

  • knowing how much money you have at any given moment
  • knowing you do not have to fear a bounced check or overdraft fees
  • no surprises
  • peace of mind that comes from having budgeted for emergencies (a post on the value of the emergency fund and how much you may need is coming later this week)

Surprisingly, the notion that a budget is restrictive is pure nonsense. As a regular listener of The Dave Ramsey Show, I have heard countless “Debt-Free Screams” in which the callers said that planning a budget felt like they had received a raise.  

Lastly, a budget is freeing because it causes you to think.  Thinking leads to reflection, and reflection leads you to consider your values and decide what is most important to you. Value driven budgeting is the key to seeing beyond the numbers and focusing on the why behind the numbers.

What Are You Waiting For?

A budget only takes a few minutes to assemble, but the rewards are potentially without limit. Getting on the right path, understanding your money, and controlling your money are keys to being a Finance Superhero. A budget doesn’t require sophistication, manipulation, or secret wisdom. It requires patience, intentionality, and a desire to be in control of one’s money.


Do you have a monthly budget? How you maintain it? How much time do you spend on budgeting each month? Please share your thoughts on all things budget-related in the comments section below.