Building a Budget & Investing – Get Your Ducks In A Row

Hey Cash Fasting readers! As I hinted in my last post, I’ve got a new series for you starting today. Get Your Ducks In A Row comes from Anna, a 20-something struggling through the post-college transition and figuring out life day-by-day. Enjoy!

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Hi everyone, I’m Anna. This year, I entered the workforce and am now learning to navigate my financials. I splurge on $4 bottles of Kombucha and eat boxed Mac-and-Cheese for dinner. My life is far from balanced, but I’m learning every day. People joke about “adulting”, but don’t quite tell you how difficult your twenties are. I hope to bring a younger and fresher perspective to Cash Fasting. Together, let’s tackle one the most difficult things to talk about – money! Dolla dolla bills y’all…

If you’re like me and new to the workforce, first off, congratulations! Now what…

In the first month of employment, financial decisions come flying at you hard and fast. Your employer asks you if you want to contribute to a retirement plan. You get a letter in the mail showing you how much your brand-spanking-new degree cost and realize that subsidized loan has started accruing interest. You have to pay bills that weren’t even on your radar a few short months ago. Where do we begin?!

Welcome to my guest series of getting your finances together. Over the course of several blog posts, I’ll be writing about how to build a budget, pay off that debt, build your credit score, and start saving. Today is the 101 of setting up your finances. It’s like that prerequisite course you had to take with the boring teacher to get to that more interesting class.

Step 1 – Budgeting Prep

• Track your spending for a week. Look for your biggest spending categories, get an idea of what you’d like them to be, and see if there are any costs you can cut down on. Swiping a credit card is too easy to do; you may be surprised by how much you’re actually spending on a weekly basis.
• How much of my income can I realistically save and spend? Elizabeth Warren is known for creating the 50/30/20 financial guideline, a simplified approach to breaking down your money. With this rule, 50% of your monthly income goes to things you need, 30% to personal expenses, and 20% to long-term savings.

Here’s an example of where certain expenditures may fall:

Getting ahead of questions: Why do debt payments count toward savings? Although debt payments are made to someone else, they help you get out of the red and into the black. Any payment out of debt is also one to yourself.

You don’t have to stick to 50/30/20, but use it as a starting point and customize the plan for yourself to see if you can afford to increase your savings!

Step 2 – Get In Motion

• Set your goals! Saving aggressively is tough. When you’re pinching pennies and feeling restricted, remember… budgeting gives you financial freedom. Set the intention to build a savings fund for that vacation to Italy you’ve always wanted, the big wedding on your own dime, or being debt-free at age 25. You’re in control!
• Create your budget. Start from zero each month and plan out spending categories. For example, $400 could be allocated to food, $80 on gas, and $100 on entertainment. Track all money outflow. Setting categories for rent and savings in your budget as well will help you stay within your customized 50/30/20 rule. There are several great tools to take advantage of to help you watch your budget – I use Mint, which automatically pulls transactions from linked checking accounts and credit cards. You may prefer to manually fill an excel spreadsheet, or write your transactions down in a notebook to stay on top of your expenses. Anything works, as long as you stick to it!
• Make an investment account. With today’s influx of Robo-Advisors, automated investment platforms, people often conflate the terms “saving” and “investing”. It can become quite confusing when thinking about where to actually put your money. Savings accounts should be used for short-term goals or emergency funding. It’s essentially an extension of a checking account that is accessible, secure, and comes with a small interest rate. Investment accounts are inherently riskier and not FDIC insured, but have a greater opportunity for increasing the money you put in.

Here’s why you don’t use savings accounts for long-term goals:

As of publish time, one of the best interest rates on a savings account currently on the market is 1.85% with Marcus by Goldman Sachs or Barclays. But this doesn’t – and can’t – account for the current inflation rate of about 2%. In a nutshell, if you park that money in savings for too long, it loses value.

Does that mean you should swear off savings accounts for life? No. Savings accounts are great for holding emergency funds (of course, keep enough to cover costs and be wary of overdraft fees) that you don’t want to be tempted to spend. Since I’m always tempted to spend money in my checking account, I hide money in my savings account if I want to earmark it for something else.

Robo-Advisors are popular investing services that use algorithms based on your risk tolerance and age to manage your portfolio. It’s affordable, convenient, and can be as hands-off as you’d like. Most companies charge as little as 0.25% of your assets annually, have minimal transaction fees, and use tax-loss harvesting to maximize your returns. Here are some great choices to choose from:

• Wealthfront
• Wealthsimple
• Betterment
• SoFi Wealth

You can sit back and watch your money grow!

Step 3 – Set Yourself Up for Success

• Automate your accounts. The best way to budget and save money is… pretending you’re poor. By setting up scheduled deposits to your investment account and loan providers on payday, you won’t have that money tempting you in your checking account. With automatic withdrawals, it’s like it was never there – and you’ll be forced to stick with what you have left. Additionally, make sure you’re enrolled in autopay for your credit cards so you’ll never get a late fee.
• Weekly Review. Check in with your budget at least once a week via the tracking system you chose. Can you tighten it a little this month? Do you need to expand slightly for holiday spending? Adjustments are allowed and welcomed when you plan for them.
• Build a Social Network. It’s easy to get carried away with spending when you’re meeting friends for dinner and going to happy hours after work. Have fun! Treat yoself! But loop your friends/family in and find cheaper alternatives to your activities from time to time.

Go forth and reach financial confidence!

Comment below with questions or topics of interest -we’ll be sure to address them in upcoming posts!

Cover Photo by Jordan Lomibao on Unsplash