Good Morning Everyone. Today we are continuing on with another budget themed post. Today we are discussing how to fit everything into our monthly budget. Regardless of how much money we make we can always make room to fit all of our goals into our budget.
Some people don’t invest because they don’t know where to start. Some people don’t save because they don’t think that they make enough money, and very often most people spend all of their monthly income. It’s human nature; we can always find something to spend our money on. The key to sticking to our monthly budget is to spend what is left over only after we invest for the long term, save for the short term, and pay all of our monthly bills.
Saving and Spending with our Monthly Budget
As a general rule we should spend 70% of our salary and save 30% of our total net (after tax) monthly income. I know some savvy savers who live on only 50% of their monthly income and they save one full pay check every month, however for many of us (especially if we are still in school) this is not possible. Of course we want to have the least amount of expenses as possible each month, but we don’t want our lifestyle to suffer at the cost of trying to save money.
The key to smart budgeting is to make sure that when we spend money the cost is worth it. If we overspend in one category of our budget then we have to save somewhere else. It’s not important (and usually not efficient) to try and micro manage our monthly budget; we have to look at the big picture. If we pay expensive monthly rent to live close to work or to live in a really nice neighbourhood for convenience then we may not need to have a car or to buy a monthly bus pass.
Our Budget Can Have Investing Too
The 30% of our net salary that should be saved can be divided between saving for the short term in case of an emergency, saving for our 5-10 year goals such as buying a home, as well as saving for retirement. We should always be saving on a regular basis for the short, medium, and long term; however the percentages allocated to each time horizon depend on our personal goals as well as our age.
If we are very young we may not need to allocate a lot of money towards saving for our retirement, because over the long term even small amounts of savings can add up to large amounts of money over the long term. We may want to focus on short term and medium term investing when we are younger because we probably have many other personal goals to achieve before retirement.
As we grow older and we start achieving our short term and medium term goals we can start to allocate more of our monthly savings towards retirement because for many of us retirement is our ultimate long term financial goal.
Photo by Borman