Over the years that I’ve worked with groups of women and talked with friends about personal finance, I’ve noticed that everyone is looking for the “right” answer. They want to know the “right” way to invest and the “right” decision when it comes to buying vs. renting. It is so tempting not to share what I think, but I try to respond with a question instead.
The fact of the matter is that there is no “right” way for everyone, there is only what is right for you.
In my “most important numbers in personal finance” post I wrote about the numbers and the general guidelines/benchmarks for those numbers that will give you a solid understanding of your personal finances. For example, I mentioned that keeping fixed costs around 50% is a solid benchmark. So yes, there are guidelines and frameworks in personal finance, but those are meant to be guides, not an exact science.
Your numbers and their relationship to these benchmarks (how close or far) will not be the same as everyone else’s. And they shouldn’t be!
We all have different financial situations and financial goals. For example, I recently posted about how my husband and I saved tens of thousands of dollars in just five months so that I could take a significant amount of time off full time work. It was our goal to make it possible for me to take time and rest. That may not be your priority.
It may be your priority to invest 50% of your income so that you can retire early. Or you may be paying off credit card debt, which may mean that is where most of your income is going each month. Or you may have perfected your self-care routine, spending on haircuts, messages, and acupuncture each month.
We are all in different financial seasons and we all have different priorities, goals, and values when it comes to money. We live in different areas and have different family responsibilities. Your numbers, your budget, and where you are in relation to general frameworks will reflect those unique life circumstances!
To illustrate this, I’ve created two budgets of two made-up people. They live in different areas and have different money goals. You can see below that where their money goes each month varies (reflecting their situations and priorities) and their ratios are not exactly, or close, to some guidelines.
One person is giving over 50% of their income to investments and savings (a general guideline is that this be around 20%). But it is their hope to retire early, therefore that is reflected in their budget. The other person loves to spend money on dinner parties with friends and you’ll see that reflected in their budget.
From my perspective both of these individuals are rockstars because their money reflects what is important to them.
What do you notice about their budgets? Can you see what is important to them or perhaps where they are proportionally allocating the most?
The exercise of putting together your current budget is freeing. With this type of visual, you can see where your current income and spending is and whether or not it aligns with your values, dreams (both short and long term), and maybe where things can/need to shift.
As a side note, it is understandable that saving toward a 3-6 month emergency fund and/or investing in retirement is not sexy or fun, and certainly does not evoke dreamy feelings. However, keeping these in the budget is something I would recommend, even if that means you are giving $5/month right now. I go into why an emergency fund may be the single best thing you can do for your financial well-being here.
These are very simple budgets for a reason. I believe that keeping this exercise simple is best. My best advice is to keep your categories to a minimum and don’t overthink it. Just get that first draft down! There’s tons of online resources you could use if you want the step by step guidance as well.
And if you already have a budget, take a look and see where you are prioritizing spending, saving, and investment. How closely does this align with your priorities and life goals?
You’ve got this!
Your personal finance friend