Day 5 – Save vs Spend
Hello again! We’re back and ready to dedicate another 20 minutes to enrolling ourselves into the world of budgeting. Today is all about allocating the remainder of our income.
You will need:
Your bill calculations, minimum cost of existing and income totals
Your budget bible
Okay, this really is the fun part. Here’s where we allocate the rest of your income.
So, you’ve established how much you need to set aside for all bills and outgoings – you’ll never be surprised by a bill again. Yeehah! You’ll also have identified how little you can realistically survive on.
So, whip out your minimum cost of existing total (bills + food + non-negotiables).
Our example churned out a total of 1400 on bills + rent/mortgage, and 260 on food and transport.
With our example of 3600 in monthly income, we’ve still got 54% to play with – 1940.
Now you can get creative and tailor that amount to your lifestyle.
How aggressively do you want to save?
Allocate between 5-25% of your income to savings.
Open a savings account now that you won’t be able to access easily. Of course, you want to be able to access it in an emergency, but opt for a high interest online savings account and say no to the offer of a linked debit card. It’s just easier that way – trust me.
You might want to split up these savings into different categories – popular ones include splurge, smile, holiday, emergency, etc. But if this is your first time, don’t overcomplicate things. Start simple.
How much do you want to spend on incidentals?
By incidentals we mean going out for dinner with a friend, buying a birthday present, snapping up those bouji AF earrings that look like they cost way more than $8, or those pyjamas with alpacas on, or saying ‘stuff it’ to your naff homemade lunch and ordering Uber Eats instead.
This will depend on how aggressively you choose to save and what sort of lifestyle you have.
You’ll arrive at this figure yourself by seeing what’s left after you’ve chosen a percentage to account for savings. It’s worth looking at your diary or calendar, too, to see what types of social occasions you’ve already committed to. There’s nothing worse than starting a fresh new budget, only to forget it’s Tamara from accounts’s birthday on Thursday and you’ve not accounted funds for her celebrations.
How much is left?
However much is left can be your ‘whoops’ fund. Ideally this will be around 5-10% of your income. It’s somewhere been savings and spending, but basically it’s a small pot of money that can be used when you make a mistake with your budget. It happens to the best of us – maybe you forgot about a bill, or you shout a friend dinner when she’s had a crap Tinder date.
Keep this in a savings account of your choice. It’s up to you whether that’s linked to your bank account or not. You know yourself and you know your level of self-control. If you’re likely to splurge it on a new pair of Mom jeans, it might be safer elsewhere.
So, fill in your budget bible with your varying amounts, and set up the relevant accounts to make it work.
We recommend sending your bills and rent/mortgage to one account, your minimum cost of existing and incidentals to another, your savings to another and your 'whoops’ money to another.
That’s all for today – check back in tomorrow where I’ll show you how to kick-start your budgeting journey with a little exercise you’ll come to know as Cold Tofu.
Bye for now.