Day 2: Saving Dough
Let's get you started on a budget. There's no right or wrong way to spend money, but you have to get organized and be purposeful.
Our framework is simple and adjustable so you can change things around as you figure out what works for you. here in the personal finance community, we are less impressed with a high salary and more impressed with a high savings rate.
Our Money Philosophy
Personal finance is (of course) personal. We will not tell you what to spend your money on. Instead, we provide structure and guidelines for how to get the most out of your money. That way, you can stretch your dollar further and feel confident in your money situation.
Step 1: Start with the 50/30/20 rule.
Popularized by Elizabeth Warren’s book All Your Worth, the 50/30/20 rule is a common benchmark for how to spend your income (after taxes).
- Needs = 50%. This includes food, rent and transportation.
- Wants = 30%. This includes luxuries and lifestyle choices, such as nicer clothes, travel and entertainment.
- Savings = 20%. This includes (1) your emergency rainy day fund, (2) investment funds like IRA and 401(k) and (3) debt paydown
Keep track of your monthly spending and try to reach 20% savings. Then, challenge yourself to increase your savings rate even further. You got this! 🙌
Step 2: Automate your money
Here at YMP, we emphatically encourage you to “pay yourself first” and “automate your money.” This means prioritizing saving and taking that money out of your checking account into a separate savings account that you will be less likely to spend. Out of sight, out of mind! 🙈
Step 3: Level up by actively tracking your spending
“What gets measured gets managed.”
If you are willing to actively improve your savings rate, we recommend tracking your spending. Budgeting doesn’t need to be a ton of work. Here are a few tiers based on your commitment.
- Level 1: Read your credit and debit card statements every 1-2 months. Track how much you spend either manually or via Mint (compiles all your accounts and tracks total spending with a helpful app). This helps to quickly scan for potential fraud and know generally how much you’re spending each month.
- Level 2: Look over your expenses and actively set limits for certain categories of high spending. For example, if you spent too much on takeout last month, set a hard limit of $50 this month. Any extra money you have leftover, throw into that savings account. 🤑
- Level 3: Track every dollar with a zero-based budget. You’ll know where every dollar of income goes and you can set goals by month or year. To help track, use software like You Need a Budget (annual fee) or EveryDollar (free / paid options).