Isn't That Rich Podcast

You deserve to spend your money on what brings you joy, but being mindful about spending is crucial for your financial well-being. By knowing your hourly wage, ignoring social media pressures, and thinking before swiping your card, you can significantly improve your financial picture. Let's dive into the essentials of budgeting without feeling restricted.

The Budget Breakdown: The 50/30/20 Rule

Budgeting often gets a bad rap for being restrictive. However, a flexible budget, like the 50/30/20 rule, can offer both structure and freedom. This rule suggests that 50% of your after-tax income should go to necessities, 30% to discretionary spending, and 20% to savings and debt repayment.

1. The 50%: Covering Necessities

Half of your income should cover essential expenses. These include:

• Housing: Rent or mortgage payments are usually the biggest fixed expenses. Ensuring these costs are within a reasonable percentage of your income is crucial for financial stability.
• Utilities: Electricity, water, heating, and internet are necessities that keep your household running.
• Transportation: This includes car payments, insurance, gas, maintenance, or public transportation costs.
• Insurance: Health, car, home, and life insurance are essential to protect you from unforeseen expenses.
• Groceries: Food is a necessity, but planning meals and shopping smartly can help keep this cost manageable.

Focusing on these essential expenses ensures you are covering the basics of living comfortably and securely.

2. The 30%: Flexible Spending

This portion is for non-essential expenses that enhance your lifestyle. Think of:

• Dining Out and Entertainment: Meals at restaurants, movies, concerts, and other leisure activities fall into this category.
• Hobbies and Leisure: Spending on hobbies, sports, and recreational activities that enrich your life.
• Personal Care and Shopping: Clothes, beauty treatments, gym memberships, and other personal care items.
• Travel: Vacations, weekend getaways, and other travel-related expenses.

This category allows for the fun stuff that makes life enjoyable, ensuring you have room for leisure and relaxation without guilt.

3. The 20%: Savings and Debt Repayment

Lastly, 20% should go towards savings, investments, and paying down debt. This includes:

• Emergency Fund: Building a fund to cover unexpected expenses like medical bills, car repairs, or sudden job loss.
• Retirement Savings: Contributing to retirement accounts like 401(k)s or IRAs to ensure a comfortable future.
• Debt Repayment: Paying down student loans, credit card debt, or other loans to reduce financial burden and interest payments.
• Investments: Putting money into stocks, bonds, or other investment vehicles to grow your wealth over time.

Building these savings and investments is crucial for long-term financial health and peace of mind.

Implementing Your Budget

To start, calculate your after-tax income. If you earn $60,000 annually, you might take home around $45,000 after taxes. Dividing this by 12 gives you a monthly spendable income of $3,750.

• Necessities (50%): $1,875 for rent, utilities, groceries, and insurance.
• Flexible Spending (30%): $1,125 for dining out, entertainment, and shopping.
• Savings and Debt (20%): $750 for savings, investments, and loan repayments.

Breaking down your income in this way provides a clear picture of where your money should go, helping you stay on track.

Tracking Your Spending

Start a spending tracker today. For one month, write down every purchase, no matter how small. This will help you see where your money is going and identify areas where you can cut back. Use a notebook, an app, or a spreadsheet—whatever works best for you. Be honest and detailed, noting each expense's amount and category.

At the end of the month, review your tracker. Highlight items that were unnecessary or didn't bring you joy. This will help you understand your spending habits and make more informed decisions in the future.

Calculating Your Hourly Wage

Understanding the value of your time can help curb unnecessary spending. If you make $60,000 a year and work 2,000 hours, your hourly wage is $30. Before making a purchase, ask yourself if it's worth the hours you worked to earn that money.

For example, if you’re considering a $90 pair of shoes, think about whether they are worth three hours of your work. This perspective can help you make more intentional spending choices and prioritize what truly matters to you.

Stop Comparing Yourself to Others

Social media can create unrealistic expectations. Focus on your values and what truly makes you happy rather than trying to keep up with influencers or TV characters. Remember that many people live beyond their means or only show the highlights of their lives. By focusing on your financial goals and what brings you joy, you can avoid unnecessary spending driven by comparison.

Action Steps

1. Start Tracking: For the next month, jot down every expense to see where your money is going. This practice brings awareness and helps identify spending patterns.
2. Calculate Your Hourly Wage: Divide your annual salary by 2,000 to get your hourly rate. Use this to evaluate purchases and decide if they are worth your time.
3. Focus on Your Values: Spend money on what genuinely brings you joy and aligns with your goals. This will help you make more meaningful and satisfying financial decisions.

Budgeting doesn't have to mean deprivation. By understanding your income and spending, you can make informed decisions that honor your hard-earned money and bring you lasting joy. Join us on this journey to a healthier financial future!