It made waves in 2017. The announcement that avocado toast is the reason millennials do not have homes. Those damn young people spreading avocado on griddled bread! They’re tearing apart the fabric of the economy!
Now I could run a quick calculation to see just how much avocado toast I would have to make/buy in order to bankrupt myself. But that’s not the point of this article. We already know the premise is a tad ludicrous; after all a mortgage in the metro-Boston area is easily thousands a month along with a hefty downpayment. $8 avocado toast once a week would hardly make a dent in that mammoth undertaking.
That doesn’t mean it’s not time to take a good long look at where your spending is going. Even more importantly, what your spending is taking funds away from. With proper measures, you can ensure you’ll be able to afford a lifestyle that doesn’t dip into the rest of your finances.
It’s easy to spend money faster than you make it; with the popularity of credit cards and the like on top of debt taken on by loans (whether student loans, home loans, or any other form of debt) you may find yourself wondering where your paycheck went. Sure one piece of avocado toast and an occasional latte aren’t throwing anyone into debt on their own. However poor budgeting habits and not having an understanding of where your spending is going most definitely can contribute.
Here are our tips when it comes to setting a budget you can stick to while allowing yourself to enjoy a few of the finer things in life along the way.
Set a goal
This one is a bit obvious, but often it’s the obvious ones that we miss right? It’s hard to stay motivated to stick to a budget if you don’t know what you’re budgeting for. Is it a European vacation? A one-bedroom apartment? Your first born’s college fund? Or maybe your retirement.
Whatever it is, having a clear goal and a firm understanding of what it will take to get there is imperative when it comes to setting a budget you’ll stick to. Just like Rocky needs a goal when his classic training montage scene comes along in the movie, you need something you’re shooting for even when giving up a few luxuries is a tad painful (less painful than one-arm pushups, but hey we all have our battles). Remember though, it’s the luxuries you’ll want to sacrifice first, the bedrock of any good budget comes with having a firm grasp on your fixed costs and expenditures.
Calculate your fixed costs
The foundation of a budget will have to revolve around your monthly fixed costs. Knowing these are crucial when it comes to knowing how much you can save, and how much over is left to spend a bit extra.
Get a sense of what your rent/mortgage payments look like, as well as utility bills, insurance, food, healthcare, and transportation costs. These are not the “nice to have’s” they’re the “need to have’s”. Exclude extra expenses like shopping, restaurants, and travel for now–those come next.
Once you have this total calculated compare it to your monthly income. Hopefully, your expenses are less– if you’re fortunate they’re quite a bit less. Next, decide to pay yourself first each month in the form of savings. Ten percent? Perhaps up to twenty? Add that as a fixed expense, and from that total decide how much will go to your savings account versus an investment account or 401k.
Once again putting as much as you can towards saving is imperative when it comes to reaching your goals, so feel free to stretch as much as you can here.
Manage your extra expenses
Now it’s time for the fun stuff.
You’re likely facing the end of your monthly income, but that’s fine. If you’ve planned well it means that you’ve got your fixed expenses covered, and you’re saving a good chunk of your paycheck. Now it’s time to treat yourself a bit.
How many dinners out can you afford? Lattes from your favorite cafe? Date nights with your significant other? Tally up and plan how you’d like to spend the remaining expendable income and know that, if you stick to your plan, you’re not spending any more than you should.
There are many apps that allow for budgeting tied to your debit/credit card however they fall short in helping you define your goals, cash flows and provide a complete digital experience for your financial life. Fortunately, we’ve got our own free tool where your information is always available to show a clear picture of your finances. Set your goals with our financial calculator here below:
With a bit of work upfront and some dedication you’ll be saving like a pro and set yourself on a path to address your short-term and long-term goals. All without breaking a sweat, or the bank!