KEY TAKEAWAYS

• Budgeting is a plan to manage your spendings and savings
  
  
• There are numerous benefits to budgeting but most importantly setting a budget forces you to map out your goals and set your own limits.
  
  
• A popular budgeting plan is the 50-20-30 rule of thumb. 50% towards essentials 20% towards your financial goals and 30% is for your wants.
   
• Lastly, make sure you’re living within your means. 

Budgeting. It’s one of the first things you have to know how to do if you really want to start understanding how your cash flows, is knowing how to budget. It might be a difficult and time-consuming task but you have to take those initial steps and know that it’s worth it.

It doesn’t matter how much financial knowledge you have budgeting is always key under any circumstances. You need the information you get from budgeting in order to better plan for not only your short-term goals but also long term like a retirement account which I also plan to do an episode on as well so I can better explain to all of you the different type of options because it can be confusing or maybe you haven’t even thought about it yet but believe me you should be.

So What is budgeting?

•  Budgeting is a plan to manage your spendings and savings

The benefits

• Less stress because you’ll know exactly how much money you earn, how much you can afford to spend each month, and how much you need to save
  
  
• It highlights where you might need to make changes so  that you’re overall spending less, saving more, and earning more
  
  
• Setting a budget forces you to map out your goals and set your own limits on where your money is going 
  
  
• It’s a powerful way to ensure you’re not spending more than you earn. Before credit cards, people tended to know if they were living within their means. At the end of the month, they’d pay their bills and what not and if they had extra money they’d save it. Now people overuse and abuse credit cards and they might not even realize that they’re overspending until they find themselves drowning in debt.

Your income is your most powerful tool, so you have to make sure that you don’t spend your money on any unnecessary expenses. Go through your bank accounts and statements to see what you’re paying for each month. Then ask yourself if it’s possible to cut down or eliminate any. The best place to start is your monthly subscription.

Everything these days is subscription-based and this is because companies like Amazon with amazon prime, Netflix, music subscriptions, and gym memberships bank on people forgetting to cancel their subscription, and next thing you know you might be paying for a service you’re not even using anymore so this is very important! 

So let’s begin with a couple of steps on how to make your budget because the first thing you have to do is choose a budget a plan and I’m gonna go over the popular 50-20-30 budget. But first here are a couple of steps that will help you. 

First: You have to figure out what you earn each month after taxes aka your net pay vs your gross pay which is the total amount you earn before any taxes and deductions are taken out.   

Second: You need to track your expense for a month or two and see how much you’re spending in a typical month and what you’re spending it on. There are different types of tools that can help you with this like worksheets or apps. One app I recommend for budgeting is called Mint. You connect it with your bank accounts and it does all the work for you. And No I’m not being paid to say that I just think It’s a really good app for budgeting.

Third: You need to decide what categories you will use for your budget and come up with a monthly limit for each category. For example, setting a limit on how much you’re going to spend on eating out or take out. Apps do this for you and you can even edit what category your spending falls under. So I definitely recommend checking them out.

Fourth: STICK TO YOUR LIMITS apps and software can help you with this by setting up alerts for when you might go over your limit.

Once you become accustomed to your budget you can always try to find more places to cut back.

THE 50-20-30 BUDGET

In this approach you’d be dividing your income into 50% towards essentials 20% goes towards financial goals and 30% is for your wants aka flexible spending. Like I’ve said It’s a very popular but simple plan that if you stick to it will help you tremendously. And of course, you can modify these percentages to something that makes sense with your budget because everyone’s situation is different. So let’s dissect this a bit more.

50% of your after-tax income will be budgeted towards your needs. This would include things like rent or mortgage, utilities, groceries, healthcare, child care, or other expenses that you need so you can work. If this percentage needs to be higher than 50 then you should dip into your “wants” portion of your budget for a while.  

20% goes towards paying down debt, savings, or funding towards your retirement. This is where you have to think ahead and your future. Getting your debt down, saving money, having an emergency fund is all ultimately to help you have a stronger financial future.

30% of your income will be towards your wants. The difficult part is separating the wants and needs. Needs are things that are essential for you to live and work. While wants are nonessential things like dinners out, gifts, traveling, and entertainment. Wants and needs obviously vary from person to person but ultimately whatever your wants and needs are if you want to get out of debt fast then you might decide your wants can wait until you have some savings or your debt is under control.

Just don’t forget to enjoy life and leave money aside for yourself and for things you enjoy. This way you’ll also be more likely to stick to your budget. Your budget is a tool to help you it’s not something that should keep you from enjoying your life. It’s just something that will help you manage it better which is why you should adjust it to your lifestyle.

So there you have it. That’s the popular 50-20-30 budget. And look When it comes to money nobody is perfect and many are oblivious to money management but you have to be proactive especially us Latinos and minorities where these resources are made even harder to access. So if you want to get your money up it starts with you and taking that first step. It’s okay if you make mistakes, as long as you learn from them. It’s about changing your mentality and taking action to turn your situation around. Sometimes we all just need to experience mistakes in order to learn our lessons. So don’t be afraid to fail. 

With that being said here are a few things you should avoid so that you can be on the right path to a healthier financial life.

1. Living beyond your means. It’s the number one mistake that most people make no matter their income. If you make 40,000 a year and you’re spending 41,000 you’re in debt and in trouble, it’s that simple. 
   
   
2. Carrying too much debt. Now there’s good debt and bad debt but we’ll get into that in another episode but for now, just know that owning a house is an example of good debt. Again as long as you’re living within your means and you can afford the mortgage payments and not be sold on an overpriced house just because it has a nicer bathroom or something and then you come to realize down the road you can’t afford the house. 
   
   
3. Not having an emergency fund. I covered the importance of this one in the savings episode and how it can be utilized for an immigration lawyer as well. But also If you get fired from your job, or sick you’re gonna need money while you get back on your feet. So like I mentioned in my savings episode aim for at least 3 months worth of expenses… and no credit cards are not “emergency funds”
   
   
4. Lack of Savings. The majority of people owe so much money that they can’t even afford to save any of their money. Even if you do have credit card debt or student loans you have to save your money. The best advice I’ve ever gotten is “always pay yourself first”. Put that money in your savings account.
   
   
5. Not having a budget. The reason most accountants and bankers have money is that they track every single penny very well with a budget. It’s key if you want to have money and put some aside towards savings. Like I said before it seems like a lot of work, but if you work hard for your money, you should work hard to keep it as well don’t you think? 

FINANCE FACTS

• Did you know that Wall Street is really named after a wall? It was a wooden barrier built-in 1653 to protect the Dutch colonists who then ruled Manhattan from the British and Native Americans.
  
  
• A majority of U.S. bills have traces of drugs on them.
  A 2009 study by chemist Yuegang Zuo of the University of Massachusetts Dartmouth found that 85 percent to 95 percent of paper money in circulation contains traces of cocaine. In Detroit, Los Angeles, Miami, Boston, and a few other major cities, bills showed traces of cocaine 100 percent of the time. Compare that to China and Japan, where the percentage was much lower at only 20 percent and 12 percent, respectively.
  
  
• A bill’s life expectancy is no longer than 15 years.
  After being used on a regular basis, bills wear out and are taken out of circulation. The $1 bill gets the most use and typically only lasts about 5.8 years. However, it’s not the shortest life expectancy for a bill — that title belongs to the $10 bill, which surprisingly only lasts about 4.5 years. The $5 bill also has a shorter lifespan than the $1 bill, coming in at 5.5 years, whereas the $20 and $50 bills start to trend upward at 7.9 years and 8.5 years, respectively. The longest lifespan belongs to the $100 bill, which lasts an average of 15 years.