No Budget? No Problem! Focus on These Four Financial Essentials

Hi Reader,

Welcome to The Money Series and if you are new here, thank you for signing up. Personal Finance can feel ambiguous and overwhelming, but I am here to help simplify the journey.

In past newsletters, I have emphasized the importance of budgeting and tracking your spending regularly. I know it’s not always easy to stick to a budget or keep up with expenses—I’ve been there too.

Is this you?

Today, I want to simplify things by sharing four key numbers you should always have in mind, even if you're not a strict budgeter.

Financial Baseline. This should be about 50-60% of your take-home pay. It includes essentials like rent/mortgage, transportation, groceries, and debt payments. Any costs that you incur regularly belong here. Once you've listed and summed them up, add a small buffer for overlooked costs like repairs, donations, maintenance, etc that you may have skipped. What percentage of your income goes toward these essentials? If it’s under 60%, you’re in good shape. If it's over 60%, it’s likely because of housing or transportation expenses, such as rent, car payments, or fuel. Consider how you arrived at your current rent or mortgage—this should generally be no more than 30-35% of your take-home pay. If you find your housing and transportation costs are reasonable, take a closer look at other spending categories.

Savings. Aim to save 5-10% of your take-home pay. This should be money that you plan to spend between 1 and 5 years. Savings should typically held in savings accounts and liquid investments for accessibility and may earn little return. This may be saving for a trip, an engagement, or a mortgage down payment. Make sure this includes your emergency fund—enough to cover a few months of living expenses in case of a job loss or other unexpected event. If you’re saving less than 5%, evaluate your spending to see where you can cut back to increase your savings.

Investments. This is where real wealth-building happens, and it should account for at least 10% of your take-home pay. Here, you invest money you don’t need for at least 5 years, allowing it to grow and compound over time. Ideally, you should invest more than 10%, but never less. The sooner you start, the better. Remember our conversation about starting early?

Fun Money. One of the joys of earning money is being able to spend it on things that matter to you. Set aside up to 20% of your take-home pay for fun - whether that’s dining out, buying clothes, or going on vacation. While it's important to prioritize bills, savings, and investments, don’t forget to enjoy your hard-earned money. This 20% may seem like a lot but if you are not paying attention, you might already be overspending in this area.

Pro Tip:

I always recommend having separate accounts for these different categories. Automate the proportional amount from your income account to the designated accounts for fixed expenses, savings, investments, and spending. For example, you could use a specific debit card for essential purchases to help you stay on track. This strategy is especially helpful if you’re not following a detailed budget.

Remember, these categories can be flexible. What might be an essential expense for me could be a luxury for you. Your financial plan should feel personalized and comfortable, like a custom-made glove.

Feel free to send in questions and comments; they might influence the next newsletter!

Act Now:

• Review these four categories and track the percentages of your income you’re dedicating to each.

Reflect on This:

• Do you have a budget? If yes, do you stick to the budget?

Till next week, I am rooting for you, money-ly!

Dee

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Disclaimer: This does not constitute financial advice. Please conduct your research or consult your financial advisor for important financial advice.