July 23, 2024
Today, we're gonna stay sort of on the same track and talk about one of my personal favorites, and that is setting up and managing a personal budget, and how to pay ourselves first. In addition to that, how to do it effectively.
Hello, everyone! Welcome back. You're watching another episode of Money Fundies. My name is Matt Stearns, and you're here at Millennial Money Management. If you missed our last episode, we talked about some different debt management and payoff strategies, so please check that out. Today, we're going to be going over how to set up a budget and manage it sustainably, and also how to pay ourselves first, something that I'm very adamant about.
So, when we talk about paying ourselves first, it really comes down to understanding the basics of our budget. So, by basics, I mean our income and our expenses flowing in and out of, you know, our personal balance sheet. Okay? So, I like to typically talk in monthly terms because that's typically how our bills, you know, are coming out and being invoiced to us. So, even though you have maybe a biweekly paycheck, I like to set up a budget in monthly terms, so that's how I'm going to be talking in this video.
Okay, so the first step is to get a good grasp on our income, you know, over the month—how much money we're making. Maybe that's two paychecks' worth. Okay? And then getting an idea of our, what I call, non-discretionary expenses. So, these are things that we really can't turn on and off—things like mortgages or rent payments, utilities, taxes, insurances, and loans, things of that nature.
Once we, you know, we know our income over the—we know the bills coming out, then we could get a grasp of all the money left over. That is what I call discretionary, so we have options of what we can do with that money. It's at this point that we need to make the conscious decision to pay ourselves first or where we should make this decision. I like to make the decision if you want to be aggressive about it, independent of how much money you want to play around with.
For example, if you have a goal and you want to save up, you know, $3,000 by saving $500 every month, set that $500 mark and make the end to me with the money left over. Okay? That's how I go about aggressively paying myself first, and I think it's a good strategy to start out with. And if you can't maintain it, you can pare back a little bit, but after we take out all the bills for income every month, that's when we make a decision about how much money we want to pay ourselves first and save or invest.
Okay, and then after we decide on that number, then what we have left over is what I call the fun budget. These are things that we have to make conscious decisions about, you know, if we need them or not. So, things like food—how luxurious we want to be with our food and eating out—subscriptions like Netflix, iTunes, and Spotify, and other discretionary things that we do that you, as an individual, have to be the judge upon.
Okay, so after we set up this budget, one of the most critical things that we can do—and I'm adamant about this—is properly account for it using some banking tools and different accounts to allocate these monies so that we don't have to manually go in and shift all these things around.
So, first of all, I make it a top priority for all my clients to set up auto pay for all their bills. Okay? And then, in addition to that, I want all the bills and the amount that needs to be allocated for those bills monthly to go into a separate account. So, when you get paid, maybe it's every two weeks or every month, you have to decide and do a little bit of calculations on how much way it needs to go into the account for all your bills every month.
Then, set up all those bills on auto payment, and then you're sure they're taken care of. And then, in a separate account, we'll set up the money for the pay-yourself-first account, whether it's an investment account that you want to send directly to, you know, your investment advisor or your broker, or if you just want it in a savings form. Okay? So, that's a second account.
And then, after that, you have what I call the fun budget, and that's your discretionary spending account. So, you get to see a number there in your paycheck. You know, everything is accounted for. You've paid all the bills, you've, you know, you've been saving up or investing the amount of money that you'd like to reach your goals, and you can do what you want with this money. You can eat out; you can take your special trips, things like that.
But that way, you know that your goals and your necessities are being taken care of, and you have a very clear-cut number of the month amount of money that you have to spend freely each month. And this should give you a really good idea.
I also advise monitoring it via an online banking app or something like that to really get yourself mentally aware of your total, you know, fun budget and how much wiggle room you have in there, and you know the luxuries that you truly can afford and can't afford. And it becomes a learning experience. You'll decide, okay, maybe I can afford to save even more, or I, you know, don't have enough money, you know, in my budget to do the things that I really want. Should I, you know, pare back or should I save less? And those are conscious decisions that you have to make, and they're gonna affect, you know, how effectively you can build wealth in your life.
But I think one very critical point is to get all of your bills on auto pay. Use the tools, the technology that you have available to you, and also use a separate account to account for these different, you know, budgets that you have, these different pots of money, I should say.
Okay? So, make your life easier, do a little bit of work upfront, do the calculations, set up the technology, and you'll thank yourself later because everything will be done for you. And at the end of the day, the only thing you have to look at is, okay, it's a new month—how much money do I have to spend to have fun?
So, there's psychological benefits to it. It simplifies everything, and there's, you know, some added peace of mind as well. So, that's how I go about paying myself first; that's how I recommend my clients pay themselves first. I hope you got a little bit of insight on a way to properly set up and manage the budget. But that's all I have for you today.
Thank you for joining me! I've been enjoying making these videos. Please like, comment, and, of course, subscribe to this YouTube channel, and we'll see you next time. Thank you very much!
