Having a healthy relationship with money is such an important part of living with intention. Trusting that your money is working for you and you have very little stress about money is so beneficial for your psychological health. You have to budget and keep track of where your money is going. You have to be intentional about your spending and your saving if you want to reach our financial goals.
How much should you save per month?
The golden question, right? How much money should you save per month to reach your financial goals?
The answer is … it depends.
I know that’s vague but, it’s true. The amount of money that you save each money really depends on what your financial goals are.
If you want to be able to retire when you’re 40 – you’re going to want to live on a minimum monthly budget and save as much of your paychecks as you can.
And, if you want to buy a $150,000 home in two years and have a 20% down payment, you have a little more wiggle room for how much you save.
But, if your financial goals are fairly general, in that you just want to follow the general rule for how much is a good idea to save, I like the 50 30 20 rule.
What is the 50 30 20 budget?
In 2005, Elizabeth Warren published a book called “All Your Worth: The Ultimate Lifetime Money Plan.” And, in that book, she coined the phrase “The 50/30/20 rule”.
The book is pretty old but, the rule still rings true.
It goes like this,
50% – Needs Expenses
Once you have figured your expenses and income (after taxes) for the month, you make an effort to limit your “needs” expenses to be at or less than 50% of your after-tax income.
Your “needs” expenses are things like groceries, rent or mortgage, utilities, car payment, gasoline, daycare, and insurance (vehicle, home, medical, etc).
According to the 50/30/20 rule, the total of those expenses should not be more than 50% of your monthly after-tax income.
So, if you make $5,000 a month after taxes are taken out (your NET income), your “needs” expenses shouldn’t equal more than $2,500 a month.
If you have a $2,200 mortgage payment, you’re in bad shape unless you don’t have any car payments and can grow all of your own food.
30% – Wants Expenses
The “wants” category of expenses includes things like cable, paying extra on credit cards (we’ll talk more about this in a minute), clothes shopping, and entertainment.
The general rule to figure out of an expense is a need or a want is, if not paying it will significantly impact your quality of life, then it’s a need.
That’s why paying extra on credit cards is a want and not a need. The minimum payment is a need because your credit score will be affected, which can have an impact on the quality of your life.
But, that extra amount is a want. And, let’s be clear, this a general rule for helping you to figure out how much you should spend vs save each month. If not paying extra is going to cause you stress and impact your quality of life then, you can move it to the need column.
Once you have your needs and wants expenses separated out, and they are at or under their respective percentage limits, you can certainly choose to make those extra payments on credit cards if that is important to reaching your financial goals.
20% – Savings
According to the 50-30-20 rule, you should be saving at least 20% of your monthly after-tax income. Now, what you do with your savings depends on what your financial goals are.
If your financial goals are to pay off your credit card debt, then you are free to make those bigger payments on your cards using your savings.
Obviously, the goal is to be able to increase the amount that you are saving, by decreasing the amount that you are spending on your needs and wants.
Especially if you have financial goals like buying a house, retirement, paying off debt, etc. The more that you can put towards those goals each month, the better.
But, the 50-30-20 rule is a great place to start to help you figure out your monthly budget and making your money work for you.
What should be included in a budget?
Basically, your budget should include everything that you spend money on. And, you should consider your savings, emergency fund, vacation fund, etc as things that you spend money on.
In other words, there should be a line item in your budget for saving money. This helps you to actually put money towards those things and not forget about them.
Some of the obvious categories are rent/mortgage, utilities, vehicle expenses (gasoline, loan payment, oil changes, insurance), daycare, and groceries.
But, oftentimes people forget to budget for things like:
Personal Care Items
Alright, ladies, there are a few things in this category that are “needs”. For instance, tampons, panty liners, and pads. I don’t know about you but, my quality of life would be significantly impacted if I didn’t have the money to buy these items when I needed them.
And, don’t forget things like running down to Walgreens to grab some children’s Tylenol because your kiddo woke up at 3:16 am coughing with a raging fever.
Life happens. Budget for it.
I’m not saying that you need to earmark $100 a month of this kind of stuff but, a 20 spot set aside each month in an envelope above the stove will definitely save your bacon.
School functions or extracurriculars
If your kid plays sports, bless you for the sacrifice of time and money that you invest. My sister has three girls and they all play sports. She is always spending money on jerseys, trips out-of-town for tournaments, team dinners, etc.
Not to mention those permission slips that your kid forgot to take out of his backpack until the morning of the field trip and you have to pack him a lunch and send him with $10.
Again, a little discretionary cash envelope up in the cupboard to cover these expenses will help keep your budget on track.
Doctor’s appointments and prescriptions
Depending on your insurance coverage, you might have a co-pay for each doctor’s appointment. Hopefully, you’re not going to the doctor all the time but, it does happen.
During our son’s first year of life, we took him to the doctor every six weeks. And, each time there was some kind of prescription, medical equipment, diagnostic testing, etc.
The medical expenses of that year definitely added up.
There’s no real way to plan for that kind of stuff. You can’t tell the future and you don’t know when it’s going to happen. But, you can stash a little money away to help cover those unplanned expenses.
And, at the end of the year, if you haven’t used the money that you set aside, put it on a credit card or take the family out to dinner.
3 Fail-Proof Steps That Will Help Build A Healthy Relationship With Money
Here are my tips to help you begin your healthy relationship with money:
Focus on the 20%
Once you’ve done the hard work of figuring out your expenses and income, the number one goal of your budget is to make your money work for you.
The 20% savings is essentially the money that you have available to leverage into improving your lifestyle. Whether it’s taking a vacation, buying a house or getting out of debt – the 20% is how much you have available to spend as you like.
So, just focus on the 20% and how to increase it.
In other words, think about how you can save even more each month. Cut back on your wants or get a job waiting tables on the weekends.
If you’re focusing on that 20%, you’re focusing on your financial goals and that can be really inspiring.
But, the 20% is where you get a voice. You get to decide how you’re going to leverage the money in your savings account into the things that you want out of life. It’s a beautiful thing.
Just pay the bill
Do you do that thing where you wait until the due date of the bill to pay it? I used to do that. But, you know what I found? The longer that I had the money to spend … the more likely it was that I would spend it on stuff that wasn’t bills!
Just because your cell phone bill isn’t due until the 20th doesn’t mean that you shouldn’t just pay it now if you have the money.
Remember, as long as you are keeping your bills within the 50% and 30% boundaries, you’re good. You already used the minutes, power, channels, whatever. So, just pay the bill. The money is earmarked for it. It’s spent. Out the window. Gone. Finite. You get the point.
Make a vision board
Alright. Nobody freak out. I’m not asking you to go to Michael’s and buy a Cricut machine to bedazzle a piece of cardboard. (I don’t even know if those words together make sense).
All I’m saying is that you need to have a visual representation of your goals. It will blow your mind how powerful this can be.
You know those amazing looking meals that you see on Pinterest. And, you get that twinge of inspiration like, “I could do that!”.
Yeah, that little twinge of inspiration is all I’m trying to help you create here.
Maybe it’s just wallpaper on your phone. Or, a magazine page that you tear out and put on your fridge. Even writing a note on the bathroom mirror with a dry erase marker could work.
Just something that reminds you why it’s important to have a monthly budget and to maintain it. You have financial goals and maintaining your monthly budget is going to help you reach them.
What is the number one thing that you hate about monthly budgeting?