Son of a Budget!

We get it. Budgeting is not everyone's best friend, at least not at first. To many folks, the mere invitation "to budget" incites feelings of deprivation. After all, it's not easy to admit that you may have to pause your daily caramel latte order from Starbucks in order to pay off a bigger portion of your credit card debt. But give it a chance - by the end of this week's WealthOnThe7, you'll learn all that budgeting has to offer, and how it can help you feel confident in your financial house!

Celebrated investor Warren Buffet puts it simply:

"Do not save what is left after spending, but spend what is left after saving."

Wait, run it back. You read that right - spend what is left after saving, not the other way around! That means that your cash flow generating formula looks like this:

instead of this:

Cash flow is a fancy Wall Street term used to refer to how much cash ($) you have available. How you manage that cash flow is a very personal question, and that's the beauty of personal finance. The Type-A's in the crowd might get an exhilarating thrill from tracking each penny and assigning it a job. Others might just want to find a quick & dirty method that will provide a framework for how to spend for the month. Regardless of what camp you fall under, we got you covered.

Here are my top 3 budget frameworks:

1/ The 50/30/20 Budget

The 50/30/20 Budget is a classic budgeting framework. It encourages end-users to allocate 50% of their monthly income towards needs (e.g. utilities, rent), 30% toward discretionary spending (e.g. your morning caramel latte), and 20% towards your financials goals (e.g. savings/ retirement). This type of budget is great for those looking for an introductory experience. The percentage breakdowns provide a framework for allocating hard-earned dollars. However, this system may offer too rigid of a framework. If you live in a high-cost of living city like New York City, your basic needs might actually be closer to 60% instead of 50%. Likewise, if you live in a lower-cost of living area, your % allocation for needs might be smaller, which can open room for a wider % savings allocation (and yes, we said beefing up the savings first).

2/ Zero-Based Budget

On the other extreme of the 50/30/20 Budget is the zero-based budget. The goal of the zero-based budget if for the end-user to assign a job to every dollar so that at the end of the month the cash inflow and cash outflow zero out.

The zero-based budget works best for those who 1/ want completely oversight of where every dollar is going or 2/ are financially strained and need to meticulously reign in spending. Caveat emptor: This method requires discipline with tracking every penny spent, so make sure you can commit!

You can find a template for the zero-based budget (and complementary spending tracker) here.

3/ The Anti-Budget

In the happy medium of the 50/30/20 budget and the zero-based budget is the Anti-Budget (my personal favorite). The Anti-Budget promises to give you a structured framework for tracking cash outflow and inflow with discipline, but also gives you a psychological boost by creating a flexible "allowance" for the month. This allowance is how much you can afford to spend after you've met your savings and investing goals.

You can find a template for the anti-budget (and complementary spending tracker) here.

That's it for today, 7ers. I hope this piece and its resources help you feel prepared to start your budgeting journey. Have a great week, see you on the next ride!

WealthOnThe7