MYM #009: The BEAUTIFUL 50/20/30 Principle!

In this week's newsletter, we're diving into the golden rule of budgeting – the 50/20/30 principle.

For those who have known Ryan & Myself – we have been raving about this for YEARS!

And for good reason. We believe having a strong budget is the foundation of great financial planning.

In this issue, we'll teach you the 50/20/30 principle, a simple yet powerful budgeting strategy.

By allocating your income into three main categories – essentials, financial goals, discretionary spending – you'll gain clarity on your financial priorities and make informed decisions about your spending.

This matters to you because having a structured budget allows you to live within your means & not rack up needless debt, all while working towards financial freedom - which is obviously the end goal for all of us!

Most people struggle to budget because of a lack of clarity & structure. Without a clear plan, they may overspend on wants and neglect savings, leading to financial stress and missed opportunities.

Budgeting helps avoid this pitfalls by providing a straightforward framework for managing your money effectively.

Key Points:

• 50% – Essentials
• 20% – Financial Goals
• 30% – Discretionary Spending 

Essentials:

When we take a look at our essentials - these are things that are truly ESSENTIAL to your general cost of living. This means things like your mortgage or rent, phone, utilities, transportation, basic insurances, groceries, & child care if applicable. Things that - regardless of what happens in your life - you will NEED to pay these on a monthly basis.

We ideally want our essentials to be at a Maximum 50% of our AFTER-TAX income. We say after-tax because unfortunately we cannot control taxes! Therefore, if you bring home $5,000 a month after-tax, ideally we want the total cost of our essentials to be $2,500. 

Obviously - it is okay to go over this 50% recommendation, but it's important to not get crazy. We have seen some budgets work in the 55-60% range, but once you get up higher than that - it becomes extremely difficult to save what you need to & also enjoy the lifestyle you are working so hard for!

(For those who have followed us on social and are used to the high quality content we post now - here's how bad our social posts were 4 years ago 😂)

Financial Goals:

When we take a look at financial goals - this can be classified as ANYTHING relating to our short/long-term goals.

Whether that be building your emergency fund, paying down debt, saving for a wedding, investment contributions, real estate, or anything else that may fit this category!

We want to see a MINIMUM of 20% of our budget going towards our financial goals. How that 20% is divided amongst different categories will be different depending on your unique situation.

It's imperative that we get into the habit of working towards our financial goals. Once we pay down that debt, or hit that emergency fund goal, then we simply roll those funds into the next goal we want to prioritize.

You get a raise at work? Awesome! All we do is increase the amount you can spend on your essentials, increase your savings, and increase your lifestyle spend! This system works for all levels of income.

Here is what our budgeting spreadsheet looks like:

Discretionary Spending:

Last but certainly not least, we have discretionary spending. This includes anything that you WANT in life, but don't "need." We like to call this the "fun money" section!

Things like dining out, going to sporting events, bars, concerts, vacations, subscriptions, clothing, and anything else that you enjoy spending your hard earned dollars on.

We want a MAXIMUM of 30% of our after-tax dollars to go towards this section. This is often the one that individuals tend to struggle with. Sometimes we see this number as high as 40-50% (YIKES!)

We want you to enjoy yourself, but also be sure to not fall into lifestyle creep - which tends to be a very hard thing for individuals to pull themselves out of.

One easy way to avoid this is attach all of your "fun money" to a debit card. If you have $250 a week allocated towards your fun stuff, once that runs out - you just wait until you get paid again & that fund replenishes for you to go buy whatever it is you wanted. 

Actionable Tip:

This system is one we've been using for a long time with clients. We think its a simple, and efficient way to take control of your financial situation.

Take 15 minutes and look at your credit & debit card statements. Write out all of the expenses you have in a typical month. Add them up and see where you stand relative to the 50/20/30.

Some of you may be in amazing shape & need to enjoy yourselves more! While others may need a wake-up-call and figure out where they can pull back to start accomplishing some financial goals. 

No need to get stressed out about it, just take a deep breath & knock it out! You'll feel much better knowing where you stand & then can outline where you can improve.

You got this!

Whenever you're ready, there are 2 ways we can help you:

​1. The Master Your Money System: Transform your personal finances into an automated machine with our Master Your Money system. This comprehensive video course will teach you the automated system we use to serve our millionaire private client base to maximize every dollar earned.

2. Become part of our private client group. If you’re in your 30’s or 40’s, earning more that $150,000 of income, and looking to maximize every dollar earned, but need speed and convenience, consider booking a meeting with us to see if we should join forces to work one-on-one.