Audio Version: Let Me Hear It!
Every great outfit starts with a solid base – a classic A-line dress, flattering skinny jeans or the perfect white tee. All other wardrobe decisions – shoes, handbag, accessories – will be shaped around this base layer. Consider a budget to be your “financial base” and the first layer of your financial wardrobe. The budget is the foundation from which all other financial decisions will be made.
Of course, we understand that creating a budget and choosing a blouse are very different in practice, but they are both about planning and control. You get to say what goes! Approach budgeting as a way to see and to take control of your spending. Not knowing where your money is going is much more stressful than choosing the right outfit. Sticking to a budget will reduce stress and help you stay focused on the things that are important to you.
If you are just starting out, we recommend sticking to the 50/30/20 rule of thumb; allocate 50% of your after-tax income to your needs (such as rent and groceries), 30% to wants (think unlimited text messaging, daily lattes and DVR) and 20% of your after-tax income to savings and paying off debt.
Solid base, check! Now, you can add other pieces to your wardrobe. Next week, on to your financial handbag…
