You know those weeks when it feels like you’re just spending money every single day? We hear you — it’s kind of like that happy hour you so badly want to attend after work. You got out early. You had a tough day and you just want to see your girls.
But giving up that happy hour drink and appetizer ($15 per night out x 10 workdays a month = $150) can make a big difference at the end of the month.
Don’t get me wrong, payday is amazing. But what you do with the money you make is really what’s key.
We’re all managing multiple financial goals throughout our lives, so how can we save and invest, and still enjoy the life we’re living now?
To help us manage how much of our paycheck we can spend on shopping and travel, how much we should really be paying for rent, and everything in between, we sat down with Krawcheck to learn more about how to budget effectively using the “50/20/30” rule.
Quit making excuses—Here’s the smart way to break down your monthly income.
The 50/30/20 Philosophy
You’re going to make it a habit to budget a little each month, but how much exactly? According to Krawcheck, you should take out your monthly bank statements and divide your after-tax income among needs, wants, savings and debt repayment, using the 50/30/20 budget as a guide.
- 50% of your income should go to living expenses and essentials. This includes your rent, utilities, and things like groceries and – transportation for work.
- 30% of your income should be used for flexible spending. This is everything you buy that you want but don’t necessarily need (like money spent on movies and travel).
- 20% of your income should go to financial goals, meaning your savings, investments, and debt-reduction payments (if you have debt, such as credit card payments).
Don’t think you have enough money to invest 2o percent? That’s OK. Start with 1%, then work your way to 5% and then 10 %. The goal is to eventually be setting aside 20% of every paycheck to Future You.
That 20 Percent…
Need some numbers to make it believable? Here they are:
Let’s say you’re 31, making $85,000 a year, have no existing investable assets, and you decide, “Hey, it’s about time I put me first,” and choose the start investing. You sign up for Ellevest and contribute 20% of your monthly salary, or roughly $1,400, to the account every month. According to Ellevest‘s estimates*, you could have around $577,000 in your portfolio at the end of 20 years or $1.1 million after 30 years.
And no, those aren’t random numbers that they pulled out of thin air. They’re fact. If you make the recommended contributions, you’ll likely hit those targets, or better, in 70% of forecasted market scenarios. “This is about investing over the long term to grow your net worth,” says Krawcheck. As a woman, the gender pay gap can work overtime to ensure that you take home less money than your male peers. It’s not fair, but (sigh) those are the facts.