This is a subject I get asked about at least a couple times a month in conversation. I keep a really strict budget and still have some funds left over to do some fun activities. I LOVE personal finance blogs, books and videos, so I have taken a lot of nuggets from each source to put together a solid plan.
Mr. Money Mustache
I Will Teach You to Be Rich
Favorite YouTube Channels:
Marko - WhiteBoard Finance
I Will Teach You to Be Rich
The Millionaire Next Door
Rich Dad Poor Dad
First off, I keep a detailed monthly budget through Google Sheets. They have a template in-house that you can edit to best fit your lifestyle. Personally, my categories are described as "Needs", "Wants" and Investments. Textbook examples of this call for the 50/30/20 rule where 50% of your post-tax income goes to Needs, 30% to Wants and 20% to Investments. Mine actually breaks down closer to 50/20/30.
How I manage my money is very automated, meaning all of my bills are paid for automatically and my investment and high-interest online savings account take money out of my brick-and-mortar bank monthly. Once I've paid those accounts what is left over first must address my needs.
Needs (50% Of My Income)
Medical/Dental/Vision (through my employer)
This list for all intents and purposes is my list of things I need to merely stay alive. My budget for groceries every month is about $200 and I rarely hit that mark. I buy almost exclusively generic brands and cook a lot of large batch meals such as soups.
Next on this list is my rent, which is $850/month. This also includes all of my utilities with the exception of plug-in electric, which usually runs about $30/month. This is a pretty good deal in an out-of-whack State College market, where salaries and housing costs make it tough to find housing close to jobs that is less than 30% of your take home pay. Yes, I still use coin operated washers and dryers. It sucks trying to come up with 14 quarters to do a load of laundry in a building that doesn't have a change machine.
Lastly, I drive a 2009 Subaru Forester with roughly 111,000 miles on it. The car is completely mine and I have no car payments on it. Growing up near the Great Lakes it is a basic necessity to have All-Wheel Drive. In State College, that isn't as bad where the winters are more mild. In my mind, there is no greater waste of money than buying a fancier luxury automobile or more car than you need, like a F-350 when you haul nothing consistently with it. I live within three miles of my office, so in a given year I only tack on between 8-10K miles. In a typical year, I'm only doing between $500-$700 in car maintenance. This also keeps my gas bill to a minimum. If I was even more ambitious I would ride my bike to work more often. However, I hate getting up early, much less working out within an hour of waking up early.
Cell phone as a "Want"? Are you kidding me? Yes. If I lost my cell phone I wouldn't be living on the streets or dying of starvation. My phone is completely paid off and pretty old in the standard of smart phones. I have an iPhone SE, which isn't even given updates by many of the apps we most commonly use.
Haircuts used to be a monthly necessity, but COVID-19 gave me the time to teach myself how to cut my own hair. Luckily, I've had a buzz cut for the majority of my life, so that was easy enough. I kindly lack the peacocking need for well maintained hair.
Subscription services is rather boring in that I only have Netflix streaming and a membership with the Society of American Baseball Research. Both keep me entertained.
My gym is hands down my biggest splurge. I pay $175/month to get group High-Intensity Interval Training (HIIT). I workout at the local F-45 gym in downtown State College. However, I see this investment in my health as more preventative maintenance than anything. Nothing gets between me and my 5:30 PM classes.
Gifts and charity are what they are. It is important to give to others and causes that are near and dear.
The next item I will break into two categories. When it comes to shopping, I don't tend to do a lot of it. Anyone that knows me is aware of my detest for clutter and rarely used items. I'm not quite a minimalist, but I also live in a 500 square foot apartment, which doesn't allow you to buy a whole lot of junk. I also happen to live right next to a Goodwill, where I get around 50-60% of my clothes. More often than not many of the clothes you buy still have the original sales tag on them. Let someone else pay the steep initial price, but you get the value out of it.
Secondly, I probably go out to eat too much. However, this is a perk of living where I do. I can walk to many great restaurants from my front door. State College is pretty underrated when it comes to quality places to eat.
As far as vacation goes, this gets decided at the end of the year. Whatever leftovers funds I have from each month go into a pool of funds to go places or buy things I don't really need. In 2019, I ended up with a surplus of about $900. With this money I flew down to Florida to visit my old neighborhood in Cocoa. I also bought a sleeper loveseat to quiet down my friends that visit for Penn State Football and don't want to pay for a hotel.
SEP-IRA (through work)
High-Interest Online Savings Account
Before my money even gets to me, 10% of my gross earnings go to a SEP-IRA account through Merrill Lynch. This contribution level is pretty high, so I wouldn't suggest it for everyone. My employer contributes a 5% equivalent of my salary once a year to this account as well. I had to wait a full year before my employer started to contribute to my retirement fund. Was it a hit to lose that added income? Sure, but you adapt pretty quickly. I intend to pull this percentage back a bit once I hit particular goals in the account.
All of the remaining funds from my paycheck go into a traditional brick-and-mortar bank through direct deposit. You know, the ones where you can get lollipops, a safety deposit box and almost dis-locate your wrist when you try to walk away with the latch to the counter pen? Yes, those. Since they don't pay anything in interest, because they seemingly must have an enormous overhead and/or aren't good at making money, I tend to keep the bare minimal amount of funds in this account. What has been recommended to me is keeping the equivalent of one month's worth of expenses. In addition to this, I keep $1,000 in a savings account in the rare occasion I ever overdraw my checking. In 18 years of having this account, this hasn't ever come close to happening.
Using the old principle of paying yourself first, 10% of my net income goes to my E-Trade investment platform every month. I didn't pick E-Trade for any particular reason. What happened is I opened an ING Direct account in college, which got bought out by Capital One and then was pawned off onto E-Trade. My personal investment account is the equivalent to a man floating down a lazy river. In that account I buy almost exclusively index funds, because I don't pretend like I am smarter than the market.
Another 10% goes to my high-interest online savings account through Barclays. As of writing this I am get a 1.15% interest on this account. This is roughly 12x what I get in my typical brick-and-mortar account. I use this particular account for my emergency fund (totaling 6x your monthly expenses), my new car fund and my house down payment fund.
Of note is that every single month I pay my credit card bill in full. I never let my balance move to the next month where I will gain interest. I will sure as heck take their rewards and Cash Back programs though. When people say you should let it carry to build credit history I get a laugh. My FICO score as of this article is a 818, so that is de-bunked. Life is a lot easier when you don't have debt breathing down your neck, so avoid it if at all possible. Things shouldn't cost more than the sticker price.
It is always wise to understand and calculate your net worth to see where you stand. To get this number it is simply add up your assets (bank accounts, investment accounts, retirement accounts, car and home values, etc.) and subtract it by your liabilities (debt you have accrued or still owe). According to the book The Millionaire Next Door your number be your age multiplied times your annual salary. For example:
Jim makes $40,000 a year and is 31 years of age. His net worth goal should be: $124,000
Through a lot of discipline in my day-to-day life I'm comfortably above my net worth goal, even with a very steep decline in the market this spring. Hopefully that continues and I can keep working towards my next goal of home ownership.
Below is a look at my personal income distribution and how it is automated.
About the Author
Andy Rupert is a Penn State (B.A. John Curley Center for Sports Journalism 08') and a Southern Miss (M.S. Sport Management 09'). He has spent his whole career working in sports and tourism digital marketing and metrics.