Unlike other financial tip Friday posts this one will be more about what I consider to be some of my basic money rules to live by. Take that for what it is worth and the more I think and write about finances the more I come up with other philosophical ideas that I agree with. However, over the past few years, since I started investing I have developed some pretty consistent principles that I try to live by (although not totally successfully).
Rule 1: Pay yourself first. I have posted on several occasions the need to save for retirement. At the very minimum you should, assuming you can (and most who read this blog can), save at least 15% for retirement. At first the 15% rule can seem a bit daunting. I mean where do you start? Can you really afford it? How do you pay yourself first? The easiest way to do it, assuming you have access to a retirement plan, is to contribute to that particular plan. If you haven’t signed up do so immediately. If you have increase your contributions to at least 15% or even more. It isn’t hard to figure out what that figure is. Just multiply what you make by .15 come up with the number and divide by how often you get paid. I get paid every two weeks so that money is taken out every two weeks. But PAY YOURSELF FIRST before you do anything. Learn to live on less that money. You won’t miss it.
Rule 2: Pay all of your bills on-time. Now this might sound like a no-brainer, but I know lots of people who decide to do other things with their money or don’t budget that money and set it aside and then at the end of the month are short when paying the mortgage or their credit cards or whatever. Maybe that is a little harsh, but I think your bills and/or obligations come before other things.
Rule 3: Try to stay within a reasonable food budget. This rule is really dependent upon your own circumstance. I mean some people love to cook at home, they use organic ingredients for everything (nothing wrong with that), or want to make different kinds of meals. Some people like to go out to eat a few times a week or get take-out. I won’t yell at people who spend a lot of money on food because Mrs. ROB and I spend a bit for food per month. In fact, according to the latest USA Today article, food costs range for a family of four from $146 to $289 a week. That is about $550 to $1150 per month. That is a pretty big range. By tracking your spending you will be able to kind of give yourself a ball park figure for what you spend per month. It will differ probably month to month, but I have found that we have been fairly consistent over the past couple of years.
Rule 4: Whatever money you have left over divide it between savings and fun. Being on a budget can be a drag for anyone. I fully admit that we don’t have a specific budget. I mean we have a specific amount of money that we spend on mandated bills (e.g. mortgage, utilities, phone, car, student loans, etc). Those amounts don’t change for the most part. Also, I know about what we spend on food/entertainment per month. My attitude is that when you then set that money aside, along with your bills, then you take whatever money you have left over and put some of that money to savings and/or fun. You can split it 50/50, 90/10, whatever. That is up to you. And savings could be extra debt payments. It could be savings in an emergency fund. It could be putting money into a Roth IRA or whatever. Your fun could be movies, a new grill, whatever it is that is up to you. There are different philosophies on budgeting. Some people like the 50-30-20 budget. You spend 50% on needs (e.g. bills), 30% on wants/flexible spending, and 20% on savings. I generally like that budget, but ours is out of balance because we have so much debt. However, I generally like those guidelines.
The Bottom Line: These are basic principles/rules that have been pretty consistent with me for a long-while now. They are not for everyone. But I am a big believer in taking care of your responsibilities and obligations before anything else. Those responsibilities include saving for retirement and meeting all of your bill obligations. What are your rules? What would you change about mine?
I know I have other rules, but those are small things for posts for a different time.