Budgeting 101 - Building a Roadmap for Your Money

🗓️ Today’s Foresight - Budgeting and Planning for Tomorrow: Different Approaches to Budgeting

There are probably a bajillion different ways to go about budgeting money. Every guru seems to have their favorite methods. Today, let’s introduce some of the more popular methods and over the next few weeks, we’ll cover them more in depth - the good, bad, and ugly.

There is no one size fits all and people will naturally feel more at home using different methods. Some people are more hands on and account for every penny every day and some people just want have a more relaxed approach. Some methods just “click” with people differently.

At the end of the day, budgeting is making a plan for your money. The method you vibe with has to work for you and your family in order to be successful.

🚀 Building the Future - Budgeting for All

50/30/20 Rule

• Traditional method that divides your take home pay (after taxes and other withholding) into three categories

• 50% towards NEEDS: Essential, have to, need to live spending such as rent/mortgage, utilities, other bills, and groceries.

• 30% towards WANTS: Non-essential spending such as eating out, concerts, movies, and other hobbies.

• 20% towards SAVINGS, INVESTING, and DEBT: We would argue this is also essential, but includes adding to your savings account, investing in something like an Individual Retirement Account (IRA), and paying down debt such as credit card debt.

Envelope Method

• Simple method where you take cash and put it in envelopes with labels - rent, food, car gas, utilities, etc. It helps you see how much you have left and you need to stretch your money over usually a month.

• It is also useful for saving up to a goal by adding money to an envelope labeled, say, vacation and you can easily track how far toward that goal you are.

• You can also do this in a spreadsheet or through a number of budgeting apps that support this method without using literal cold hard cash.

Zero Based Budgeting

• Zero based budgeting forces you to start at a baseline of zero and build your budget from there. You’re justifying every dollar you spend and making sure it does something specific.

• You must allocate every cent that comes in to a specific category. Your income minus your allocations MUST equal zero. Every penny goes SOMEWHERE.

• If you overspend in one category, you have to reduce spending in another category to make sure the overall equation still equals zero.

Pay Yourself First

• The primary focus in saving and investing your money. You do these with your money before you move on to tackling other needs and wants.

• Basically, 50/30/20 in reverse - instead of thinking about have to do things first, you think about saving first.

😋 Frugal Food - Fridge Purge

Every issue we’ll have a recipe or general food tips to save money and stay healthy

If you’re like me, you somehow end up with a refrigerator full of random leftovers. Well, we don’t like to throw out food here… unless we REALLY forgot about something and it has turned interesting colors somewhere deep in the back of the fridge.

So sometime before the next big grocery shopping trip when supplies are running low, we end up with a random meal!

One that does not make a ton of sense. Just using the last bits of random leftovers and other things that need to be eaten. If it’s after a holiday, it’ll be even more fun because it will be even more random.

Chicken wings and rice - basically chicken and rice!

The real plan here is to waste nothing. Plus, this always helps inform the shopping list because it helps you take stock of what you (don’t) have.

❓Q&A - Send us your questions!

Another one from Reddit: Fluffy_Iron_7589 on r/personalfinance is a 31 year old and their wife and they say that they feel behind especially when they look at compound interest calculators. They have:

• $112,000 income

• $20k in credit card debt

• $13k left on a car at a decent interest rate

• student loans

• bit of medical debt

• $2k in their 401k retirement plans, but are starting to contribute to get their company’s match

They want to know if they are super far behind or can they catch up once they knock out their credit card debt?

The top comments all agree - delete the credit card debt as soon as possible. There’s nothing (guaranteed anyway) that can make 29 percent in gains to beat out the 29 percent extra they are paying for their credit card debt. We aren’t anti-credit cards as some others, but we do agree that carrying this debt while also trying to invest for retirement is tough.

They also have time on their side. Assuming the retire at 59 ½ even and are not even trying to retire super early, they still have almost another 30 years to invest and grow their wealth.

See you in the future,

Foresights Foundry

We talk about family, finances, money, budgeting, personal growth, planning, and making data driven decisions through this newsletter and (work in progress) on YouTube.

Disclaimer: The information provided on this page is for informational purposes only and is not intended to be financial, legal, investment, or tax advice. You should consult with a relevant professional.