Financial Wellness: Breathing room important in balanced budget

Before we married, my husband and I had idyllic dreams of what wedded bliss would look like. They were contrary to how a lot of people probably imagine early career success.

As early 20-somethings, we didn’t picture a big house or fancy cars. Instead, we were excited to live like broke college kids, despite our newfound incomes.

These meager aspirations – ramen and all – set us on a good financial foundation going forward.

In order to live a financially well life, you need to spend less than you earn. CNBC TV host Suze Orman calls this “living below your means but within your needs.” The more space you put between what you need to spend and what you earn, the more peaceful you’ll find your financial life to be.

It takes discipline to not spend every penny you make, but it’s worth it. You’re able to weather the rainy days better. It also gives you the flexibility to spend more when you have the chance to bask in the sunshine.

One easy way to do this is to automatically increase your 401(k) contribution anytime you receive a raise. You won’t miss the extra money, and will automatically start building that cushion – both in future funds and your budget.

You may also want to take a deeper look at your overall financial picture – at what you really make, really spend and where those numbers should be.

A common guideline for budgeting is 80-10-10: Spend 80 percent, save 10 percent, give 10 percent. It’s a tried-and-true principle that creates financial leeway.

One model I really like was outlined in the 2005 book “All Your Worth,” co-written by Harvard professor and now Massachusetts Sen. Elizabeth Warren. It’s called the 50-30-20 budget.

In this model, half your net income is for needs, 30 percent is for wants (including clothing, vacations, dining out, charity and gifts) and 20 percent for savings (retirement, emergency and extra debt payments).

By keeping necessary expenses like housing, insurance, transportation, groceries and loan repayment to half your income, you’d still be able to pay the essential bills if one spouse was suddenly out of work or you had to go on unemployment.

It’s long been my family’s goal to live off one income and save the other. That’s what allowed me to cut my work hours after our children were born.

Even as our salaries have gone up, we’ve worked to keep our obligatory spending low, dedicating extra money to our mortgage and retirement funds.

Instead of increasing our standard of living, we’ve increased the breathing room in our budget.

That’s worth a little ramen.

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