Now, I don’t see money as a way to buy “stuff.” I look at it, instead, as a way to achieve freedom for myself and my family. As I learned more about personal finance, I started to look at money in a different light.
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The benefit is always 20, 30, 40, or more years away.Īnd eventually, that just shifted for me because I’d been saving for a while. They don't see the advantage in the near term. And I think that's a big reason why many people don't save more money or cut back on expenses. The truth is, that at that moment, it wasn't going to help me much. So, if I saved $500 or $1,000 or whatever, it might help me when I turned 65.
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I had about $55,000 in student loans, which means we had a negative net worth. When I graduated from college, we had no money and a lot of debt. When you're just starting out, this seems like an impossibility. Learn More: 100 Ways to Improve Your Finances (Most in Under 10 Minutes) I could trade those things for a lifestyle where I spent less money and saved more, which would let me have this lifestyle where I have the ability to work where and how I want. For example, I could trade in the bigger house, new cars, cable packages, and expensive vacations for freedom. I realized that I could get there by giving up things that had once seemed important to me. I didn't want to be chained to a desk five days a week. But I wanted the freedom to work when I wanted to work, where I wanted to work, doing what I wanted to do. I didn't want to quit and not work at all. The most important thing was my freedomĭon't get me wrong. And then I began to realize that the most important thing to me was not a bigger house, expensive vacations, 200 cable channels, or a new car. It was almost like sending out employees who were working for me.Īnd then I started to see how that money could fund a fair amount of our expenses, particularly if we became more frugal with our lifestyle. But after a while, I started thinking about how much my money was working for me. It takes some time because you need to benefit from the power of compounding. But as I blogged about personal finance, I started to save a little more money, pay off more debt, and watch my retirement nest egg grow. In that sense, we were very normal.īut that all started to change when I started this blog and began to write extensively about personal finance. We took expensive family vacations and other things that most middle-class Americans do. We bought a big house, and then a bigger one.
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I bought a new car, an expansive cable TV package, and the big TV. With that mindset, I did what a lot of people do. Resource: Ways to Save Money Without Sacrifice I'd go to work for 40 to 50 hours a week, earn income, save a little, and spend the rest. My attitude was that my job was going to finance our living expenses until we retired at age 65. We’d contribute to our 401(k) and a little bit beyond that, but nothing more. We saved some in an online savings account, but our monthly savings was typically in the 5-15% range. I went to college, got a job, and started spending. But first, I want to talk about a shift in my own thinking on money that's occurred in the past five or six years.īefore I started blogging about personal finance in 2007, I thought about money like most people do. I do want to give you my thoughts, specifically, on the 50-20-30 plan for budgeting. To sum it up, with this budgeting rule, you put 50% of your money towards necessities, 20% into long-term savings and debt payments, and 30% for lifestyle choices and non-necessities. So the remaining 30% of your take-home pay goes into this bucket. These are things you don’t really need to get by. It includes things like vacations, entertainment, gym fees, hobbies, pets, eating out, cell phone plans, and cable packages. The 30% bucket is for your lifestyle choices. This bucket does not include short-term savings, like a vacation. And if you’re trying to become debt-free, the extra debt payments would go into that budget.īasically, the 20% bucket is for your financial priorities - your savings for the future and some debt repayment. For example, this bucket would include contributions to your 401(k) or IRA. The next 20% of your budget goes to long-term savings and extra payments on any debt you may have.
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Related: How to Create a Bare Bones Budget This rule of thumb says that those expenses should comprise no more than 50% of your take-home pay. Without making them, you can suffer some serious consequences! So minimum payments on your car loan, credit cards, student loans, etc. It also includes minimum payments you need to make on your debts. These are the things you need to get by day-to-day. The first 50% of your budget goes towards necessities, including shelter, food, utilities, transportation, and clothing. At its basic level, the 50-20-30 budget divides your after-tax, take-home pay into three buckets.