Hi guys! If you’ve been following me on Instagram, you know that one of the things that I stress is the importance of balancing and rebalancing your budget often. Your budget is not like a Ronco Rotisserie (do y’all remember those?). It is not a “set it and forget it” sort of thing, especially if there’s the potential for your income to fluctuate. One of the easiest (and fastest) ways I’ve learned to rebalance is to look at percentages rather than actual dollar amounts to determine whether I’m still on track to meet my financial goals. There are certain rules of thumb that I’ve found work the best for me to avoid high recurring living expenses while simultaneously aggressively invest toward retirement, remain on track to pay off my mortgage early, still live quite comfortably (I also still shop at all my favorite stores, have Starbucks, and take time off often) and do it all on one income. Here are the guidelines that I follow that allow me to do this.
#1 – Tithe
The first thing I do when my paycheck hits my account is to set aside my tithe. My employer makes my paystub available 3 days before payday. I’ve made it a habit to review it and make sure all of my deductions were taken out properly and to check what my gross pay was before taxes or anything else was taken out. I tithe on my gross pay, so it ends up being about 14% of my net or take-home pay.
#2 – Get Recurring Expenses Under Control
First, let me put this in some context. I consider my recurring expenses to be these items:
- Cell Phone Bill
- Reserves (the bills that only come up quarterly, semiannually, or annually like insurance, HOA dues, and vehicle servicing – more on that here)
- Electric Bill
- Water Bill
- TV & Streaming Services
The goal is to keep all of these recurring expenses as low as possible and never more than 50% of your net pay. If you have any consumer debt, include those minimum payments. I don’t have any consumer debt, so I focus on sending extra to my mortgage principal every month to pay as little interest as possible and pay the loan off early. Factoring all of that in, my recurring bills (including extra mortgage principal) is about 45% of my net pay.
#3 – Pay Off Debt/Save Your Emergency Fund/Aggressively Invest Toward Retirement
If you have consumer debt, the next thing you need to look to do is send extra money toward the principal of those loans or credit card balances. If that’s squared away, build up your emergency fund in a high yield savings account. Again, I don’t have any consumer debt and my emergency fund is fully funded, so the next thing I look at is investing – specifically toward retirement. If you participate in your employer’s 401K (and I highly recommend that you do!), make sure that you understand what the company match is if there is one. Many employers will match your contribution up to a certain percentage. It should be your goal to contribute at least enough to get the full company match. If you’re able to contribute more than that, do it. I contribute about 16% of my net pay toward retirement – split between a 401K and an IRA.
#4 – Manage Non-Recurring Expenses and “Fun” Money
Now, I refer to these as non-recurring not because they don’t come up every month because they absolutely do but because the amounts spent on each fluctuate from month to month depending on what my family needs or wants. I consider these things to be groceries, gas, household goods, clothes, shoes, home décor, toiletries, eating out (take-out these days), and entertainment. Pre-pandemic, it would also include a mani/pedi for this momma every month. 😊 I don’t track each individual category here super closely – it works for me not to have to do that – but I certainly put a cap on the overall total so that I’m not overspending. My recommendation is that you not spend more than 20% of your net pay on these things. I did track my average spending for a little while and settled on an actual dollar amount per payday or paycheck that works for my family, and it comes to 19% of my net pay. Sometimes, my spending is heavier on groceries, household goods, and gas for my car. Sometimes, we indulge a little more on take-out and entertainment. I let that pendulum swing as it may, allow that room for some fun, as long as the necessities are met first (like groceries, toiletries, and gas) and it doesn’t exceed that 19%. (Pro tip: For clothes, shoes, and home décor, shop off-season and shop the sales and clearance sections. Always look for a coupon or promo code before you buy.)
#5 – Save For Sinking Funds
Here’s another fun part – sinking funds. This is your short-term savings for whatever you want that money to go towards – travel, furniture, a bathroom renovation, or whatever else you want. This is how you cash flow the things you want without having to take out a loan or carry a credit card balance. For this last 6% of my net pay, I pay my son his allowance and save up for birthday and Christmas gifts, travel, and, right now, a new patio set I’ve had my eye on. 😉 And keep in mind, there is no such thing as an amount that’s too small to put toward your sinking funds. If you can only come up with ten extra dollars, SAVE IT. Every dollar adds up. Do what you can with what you have. Every income, every family, and every financial situation is different.
So, in a nutshell, that’s how I rebalance my budget. It takes me a few minutes a few times a month to make sure that what’s coming in fits into the percentage buckets that I need them to in order to stay on track with my financial goals. Now, it’s your turn! Do you rebalance your budget when you get paid? Do you lead with dollar amounts or percentages? There’s really no wrong way to do it as long as you take the time to do this financial check-up often. Remain consistent, and I promise, you WILL reach your goals.