How to build wealth...A Beginners Guide to Budgeting

Beginners Guide to Budgeting
Let's talk budgeting!

Budgeting. What a buzzkill! Can't we just treat ourselves all day, every day? It's nice to splurge on that serum that helps with adult acne. It's nice to be a member of a pilates studio or put a chunk of our paycheck towards an Equinox membership. After all, we deserve to treat ourselves, don't we? We, women, work for it and earn it. So, why not reap the benefits of working hard, right?

These were my thoughts until I took a hard look at my long-term goals like going back to school for further education and realized I couldn't afford to! In my 20s, my long-term goals were not to buy a beautiful, forever home or save for retirement. They were about going back to school, taking an international vacation once a year, putting $ away into an investment account and saving more.

Growing up, I did not talk about money with my parents. We didn't talk about which credit card to apply for to build my credit early on or how much to save for the goals I wanted to achieve. It was "Work hard, the money will follow" sort of mentality. While working hard is important, it's just as important to have your money work hard for you and know the basics of how to grow your 💰. When I started earning a full-time salary working as an accountant after graduating from college, I was loving the cash flow. I was happy to be able to help out my parents when needed and have a closet full of shoes I wanted. But, I quickly realized I was NOT okay with using up my entire pay check that "I work so hard for" on things I "need" and still not have enough in an emergency fund –– I learned this is so important by going to "Women & Finance" seminars at my firm. I also learned that I had no idea how to manage my money, how much I should be putting away in savings vs. a higher yield investment account, or how much I should be budgeting for needs vs. wants or my future goals. This is where budgeting started to play a big part in my life, especially after graduating college.

We all have our individual needs and our values of what we consider important. If a new pair of shoes make you walk taller and be more confident in who you are, then you do you and buy yourself 👠! I'm not here to define your values. I'm writing this to share what I have learned around budgeting so that you can manage to pay those bills but also enjoy treating yourself when you can without feeling guilty or struggling financially.

Having a strong financial foundation never hurt nobody.

This post is only scratching the surface of building a strong financial base for yourself. and Step 1 in doing so is budgeting for all your needs, wants, and emergencies. So, here are some tips that I have picked up and learned throughout my 20s and 30s.

Your budget will be different depending on your situation, values, needs, household size, pay-scale, etc.

To start budgeting, consider the main steps:

  1. Determine your monthly expenses and take-home pay — net income (money you earn minus deductions for taxes, Medicare, Social Security, health insurance contributions and allocations to retirement accounts like your 401(k) or Roth IRA)

  2. Figure out your goals and the values that align with those goals — I'll talk about some of mine throughout the post.

  3. Find a budgeting method

  4. Find a tool to go along with that chosen budgeting method

Where I started:

I started using the 50/30/20 budget method when I first graduated from undergraduate school and started my first, full-time job as an accountant. It's simple enough so that once you create your budget using this rule, you can monitor your actual expenses against your allocated after-tax income (net income) without constantly thinking about how much you have left.

FUN FACT: Did you know U.S. Senator Elizabeth Warren popularized this budget rule in her book All Your Worth: The Ultimate Lifetime Money Plan?

Here's how it works:

  • 50%: allocate to needs and obligations that you must-have or must-do .i.e. the basics — rent, health care, groceries, car payments. Notice something? 👀 This bucket does not include Netflix, coffee runs, dining out. Even though Netflix is part of the pandemic survival kit, it's not a must. Sorry! 😐

  • 30%: allocate to your wants that are not absolutely essential (travel, monthly subscriptions, shopping)

  • 20%: allocate to your savings and debt (investment funds, retirement account)

If you're spending more on your needs, you have to find ways to cut down on wants or downsize in the areas where you can. For example, if you're on an individual phone plan, can you get some friends or family members together and sign up for a family plan? In general, bundled plans are much cheaper than single plans. Share the burden 😀.

Can you go workout at the park, in your home or apartment rooftop instead of paying for a gym membership? An added bonus if you workout at home is you also save commute time and $. I bought myself the Bowflex Adjustable Dumbbells along with resistance bands from Amazon and I'm able to get incomplete workouts using either a workout app (around $12/month), YouTube videos (free), Instagram (free) trainer (@carmilla_k) from the comfort of my living room. This has saved me roughly $1,500/year. Part of this was due to the pandemic in early 2020 and gyms being closed but I'm going to continue with this going forward. I've used these additional funds to start an investment account with Fidelity and bought around 15 shares of 3 different companies' stocks. Remember earlier how I said one of my goals was to save more and get comfortable with investing $? These additional savings got me started working towards it.

How to get started:

  • Option 1: Use a simple excel template to keep track of your budget. Here is a free template pulled from online. It has a tab for a 1-person budget and another for a 2-person budget. This is how I got started. No muss, no fuss! The one downfall doing it this way is that it's all manual and time consuming. You'll have to look at your credit card statement or your bank account every week or month to determine what your money went to.

  • 50-30-20-Budgeting-Templates.xlsx

  • Option 2: Do it digitally! There are so many apps available that can track your budget based on your spending and measure them against goals you define, giving you a visual idea of your progress. The one I use is Mint. Another one that is highly rated in the App Store and on is PocketGuard.

PRO TIP: To reach savings goals easier, set up automatic transfers from your checking account to your savings account or set up a direct deposit from your pay check where a portion of your money is automatically despoiled into a savings account.

What I learned using this method:

  • I underestimated how much I needed for certain "needs" and overestimated how much I needed for "wants" so I took the average of 3 months (non-holiday, seasonal months) to determine the estimate for each month that should go towards each category. For any special occasions like Christmas or birthdays, I built in a buffer for that month.

How it's going?

I learned that I wasn't necessarily sticking to the 50/30/20 budget as well as I would have liked to! I paid off my undergraduate student loans using that method for about 5-7 years but learned that I absolutely hate to budget and do not want to do it every month for the rest of my life. LOL

So, there is a place for people like me. It's in the "no budget" budget world. Yes, this exists. The one thing I have learned about myself from my late 20s and now in my early 30s, is that I can be super disciplined when it comes to money. If I know I can't afford something, I won't buy it. I won't try to save somewhere else to afford something I want. Hence why the previous 50/30/20 method wasn't working for me anymore. I felt like I was compromising constantly and talking myself out of enjoying a nice dinner out with friends or signing up for a pilates class at a neighborhood studio which brought me so much joy because of guilt and because it didn't fit into my needs category.

And, it's okay for your budgeting ways to change with you and your ever-growing goals!

The "no budget" budget is for people like me who a) don't like to budget and monitor their spending down to the dollar AND (listen up, very important!) b) a disciplined person where you're not prone to overspending and can prioritize savings overspending on a normal basis. I'm still paying off student loans accumulated post-undergrad and am still able to put funds away in my investment accounts while maintaining an emergency fund. The point is that these expenses, for me, are always in my "needs $ for" category so I know how much I have leftover to play with each month for special occasions or spend on a trip. I still monitor my long-term goals, which have changed in my 30s to affording a place to buy (whether a condo or a house) in the next 5 years, and because I'm constantly staying disciplined and not overspending in any category, I feel good about being able to have enough saved for a downpayment when the time comes.

I'm not perfect. I have made financial mistakes out of sheer ignorance or by being influenced by the culture and social norms we're all surrounded by. Once when I was 25, I spent over $1,500 on a psychic medium. 😱🤷🏻‍♀️🥵🤦🏻‍♀️😳 .That one still haunts me. The one good thing to come out of these mistakes is they have helped me define and redefine my values to understand what is truly important to the life I want to live. If it's important, I put $ towards it.

That's all, ladies! Keep it simple, define your values and what's important to you, allocate enough $ towards those goals or cut where you need to and figure out where you can afford to save.

'Till next time!

- Nidhi

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