Planning is bringing the future into the present, so that you can do something about it now.
Alan Lakein
Having a budget can be incredibly helpful and in this post I would like to introduce a little scheme that I have been using for well over a year at time of writing. This outline has helped me tremendously in taking the first step towards better money management. It immediately gives you an overview of what your month is going to look like financially.
Funnily enough, this budget scheme is actually what made me realize that I can be a person of great financial wealth, and that I can be in control. So I guess you can say that this was the starting point of my own financial journey. The scheme I am about to show and explain to you, was introduced to me by my partner.
Budget scheme explained
The budget scheme (as shown below) gives an indication of how much money is left for you to spend during one particular month, after subtracting your monthly fixed expenses and setting aside a portion of your income to save or invest.
The percentages listed in the outline determine how you will divide your income into the part which you will use to pay for your monthly expenses and other, discretionary expenses (Living), and the part which you’ll set aside to save or invest (Saving/Investing).
| Monthly income (MI) | €… | |
|---|---|---|
| Living | 50-70% (of MI) | €… |
| Saving/Investing | 30-50% (of MI) | €… |
| Monthly expenses | €… | |
| Left to spend | Living – Expenses | €… |
The percentages you choose are completely up to you and is also dependent on the size of your paycheck and the sum of monthly expenses. The percentages listed here are so-called “best case scenarios” and would form an ideal foundation for your financial wealth. Naturally, the higher the allowance for saving or investing, the better.
The monthly expenses listed in your budget entail all those costs which recur each month. This would include costs like rent or mortgage, insurances, utilities, phone bill, memberships etc. I personally do not count groceries as monthly fixed expenses as those costs are generally never the same.
Also, not including groceries will favor a clearer overview and might result in more awareness regarding your spending. For example, you could switch to frozen fruit instead of buying them fresh and save a few pennies. These minor changes will have a huge impact in the long run.
To calculate how much money you will have left to spend on groceries and other expenses (like shopping or entertainment), you simply subtract the monthly expenses from the Living part. I created a quick example below:
| Monthly income (MI) | €3000 | |
|---|---|---|
| Living | 60% (of MI) | €1800 |
| Saving/Investing | 40% (of MI) | €1200 |
| Monthly expenses | €1200 | |
| Left to spend | Living – Expenses | €600 |
Plan for your goals
This example is meant for you to get an idea of how it works, although I gather it should not be too difficult. I would recommend you to play around with the percentages to see what would fit your lifestyle and your goals best. If your lifestyle and goals are not aligned, change your lifestyle. Never change your goals to match your current, and most likely temporary, situation.
Budgeting, and especially this outline, should be seen as a way or a tool to get a step closer to your goals and dreams. Sometimes this means that you will have to save more money than your lifestyle allows and that would require some sacrifice. You might wanna look into your (past) expenses and habits to see where you can reduce costs.
The amount that is calculated at the bottom line, can be split further into categorized budgets, as explained in this post. If you wish to create a well structured overview and stay on track with your goals, I would recommend taking a look at that post. The better you plan something, the lesser the room for mistakes and temptations.
Lots of love,
