Tag: Budgeting

 

A Guide on How to Budget on A Variable Income

There are a lot of perks that come with freelancing, but a stable, regular paycheck isn’t one of them. 

During my first year as a freelancer, I dealt with an inconsistent income roller-coaster: One month I’d stress about late client payments (and making rent), while the next month I’d find myself flush with cash. 

Indeed, when you don’t know how much you’ll make or when you’ll get paid in a given month, it’s difficult to get ahead financially. Currently, 20% of the workforce is freelance and that number is projected to rise to 50% within the next decade. And freelancers aren’t the only ones dealing with an inconsistent income. If you’re paid on commission or earn the lion’s share of your income on tips, you may be dealing with this roller-coaster as well.  

For me, I had to implement a budgeting system that helped me pay bills and save money for my financial goals. I found a system that works for me, and it can work for you, too. Read on to learn more about my tried-and-true budgeting system for an inconsistent income. 

How this budgeting system works — an overview

While your income may be irregular, most of your bills are not. Plus, one month you may live large because a client finally paid you while another month you can barely cover rent because things have been slow. 

To break this feast or famine cycle I nailed one goal: I pay myself first with a steady, consistent paycheck. Regardless of how much I earn each month, I still get paid the same amount. 

So, let’s say you’ve decided that your monthly paycheck needs to be $5,000. One month has been stellar, and after setting aside money for taxes, you’ve earned $7,500. Rather than spending that $7,500, you pay yourself $5,000. 

The next month has been a little rough and after taxes, you’ve only earned $3,500. You can still pay yourself first with a regular paycheck. See how that works?

While it may be a bummer to not spend a little extra during months when you earn a lot, you’ll be thankful that you didn’t blow your cash when a slow month rolls around. 

Steps to implement this system

The pay yourself first concept is pretty straight-forward. But, with any budgeting system, there are a few key steps you’ll want to take to implement this. 

Step 1: Calculate your budget

The first step is to figure out what your monthly paycheck will be. If you don’t have a budget already, start by listing all of your necessities. These are the things that you absolutely must be able to pay for each month, regardless of how much or how little you make. For example: 

  • How much do you spend on things like housing, transportation, utilities, groceries, and health insurance premiums? 
  • How much do you transfer into savings each month for retirement and other goals?
  • What are your debt payments? 

Next, you’ll add your discretionary spending to your budget. This includes things like eating out, shopping, subscription services, and any extra travel. Discretionary spending is nice but you can also cut it out when things get really lean. 

Not sure what you spend? Take some time to look back through your past few months of credit card and bank statements to get a good estimate. 

Once you have everything listed, add it all together. This will tell give you a ballpark idea of your monthly budget and monthly paycheck amount. 

Step 2: Set up separate bank accounts

To keep this system organized, you’ll want to have a few separate bank accounts set up, including accounts for:

  • Work income (or business) 
  • Personal spending 
  • Savings 

It’s a good idea to deposit your work income into a checking account that is only used for your work expenses (no personal spending). If you’re self-employed you might want to consider using a business checking account. 

Each month your “paycheck” will be transferred from your work checking account to your personal checking account. You’ll pay all of your bills and do all of your personal spending with the money in this personal account. 

You’ll also want to have a separate savings account that you can pull from during your down months. Dave Ramsey calls this savings account a “hill and valley fund”. When you have an exceptionally good month, you can transfer money from your work checking account to this savings account. And during an exceptionally bad month, you can transfer money from this savings account to cover your full paycheck. 

Step 3: Adjust as needed

Just like with any other budget, you can make changes periodically and check to see whether this system is working. If you find that you haven’t given yourself enough of a paycheck to comfortably live, go back to step 1 and recalculate your budget. If you find yourself constantly needing to dip into your savings account to give yourself a paycheck and that account balance is getting dangerously low, you may need to cut back on some of your expenses or earn more money. 

Set yourself up for success

If you have an inconsistent income, don’t fret. You can still enjoy the benefits of flexible earnings with a budget that works. 

While it can take some time to set up this system and get used to paying yourself a consistent income, you’ll eventually breathe a little easier each month. Besides, it’ll be nice not to worry about paying your bills when things get a little slow. Are you ready to give it a try?

 

 

The Ultimate Back-to-School Budgeting Guide

Back to school season is right around the corner. That happened fast! 

While kids are probably not ready to give up on summer fun, it’s important that parents start planning for back-to-school expenses and consider creating a budget. Indeed, as it gets closer to crunch time, every paycheck counts. 

According to a recent survey, families plan to spend around $685 per child during the back-to-school season. In order to help you figure out how to manage these costs, we came up with the ultimate back-to-school budgeting guide.

Get started by prioritizing your expenses and planning out your spending. Take a look:

Narrow Down Your Back-to-School List

If back-to-school shopping is overwhelming, you’re not alone. You probably have tons of school supplies and more on your list and if you’re not organized, you can easily overspend or forget something. 

So, before you head to the store or start shopping online, narrow down which expenses are your priorities. Some of the most popular categories are:

  • School supplies
  • Clothes
  • Shoes
  • Backpacks and lunch boxes
  • Books
  • Technology

For starters, set a recommended spending amount for each category and notate this in your budget. This way you have something to shoot for. For example, if you only want to spend $120 on clothes, include this in your budget to help you plan your spending strategy more effectively.

Factor in Any Hidden Costs

Don’t forget about hidden back-to-school costs, like after-school activity fees, band equipment fees, setting up a school lunch account and the likes. Identify these costs early so they don’t bust your budget. 

Take Inventory Around the House

Before you start doing any shopping whatsoever, take a look around your house to see what you already have. I do this each year and it saves me a ton of money

When my son comes home on his last day of school, I unload his backpack, remove all of his leftover school supplies, and store them away. I often find unused pencils, packaged notebook paper, markers, crayons, and folders that are in pretty good shape. 

When August rolls around, I take the stash of school supplies I saved and use that to determine what items I actually need to buy. 

You can do this with clothes as well. Go through your child’s closet before shopping and start to piece together existing outfits that still fit and are in good condition. 

Determine Your Savings Timeline

Once you know how much you have to spend and what you need to buy, start developing a timeline for your shopping so you can save up in advance.

For example, if you find that you’ll need to spend $400 on back-to school items this year, break out that amount over your next few paychecks and start saving. You can make it even easier by setting up automatic transfers every time you get paid. 

Also, see if you can spread out any purchases. For example, school starts a week later for us this year so I plan to use the extra time to spread out my spending. I’ll buy school supplies first, and then take my time purchasing clothes and anything else.  

Follow the Deals

When shopping, make sure you take advantage of deals and coupons to save money. Stores like Target and Walmart, and office supply outlets tend to have competitive back-to-school offers. 

One year, we took advantage of Office Depot’s penny sale and scored several items for a single penny. 

You can also shop in spurts as some stores may give you a coupon to use when you come back. In this case, it makes sense to do one round of back-to-school shopping and then return a few days later with the coupon. 

Thanks to the Internet, you can also save money shopping from your living room. Sites like Rakuten are great for earning cash back on your purchases without having to use a credit card. You can also use sites like Flipp and Hollar to scan for deals from your phone. 

Shop Used or Find Free Items

Another great way to help you stick to your back- to-school budget is to shop for used items. Clothes can be expensive and sometimes I wait around for the Labor Day sales, but I also like to mix in some used clothing.

Thrift stores like Goodwill and local resale shops allow you to get more bang for your buck and you can often find great name brand items. 

If you need specific supplies, you can also ask around to see if family or friends can help. For example, an older child may need a special calculator for math. Before you run out and buy one, see if anyone you know has that calculator and will let you borrow it for the year. Perhaps they’ll even give it to you if they no longer need it! 

Avoid Overspending 

Try to use some of these savings strategies to help you stick to your budget and avoid overspending. Odds are, you have other expenses to consider during the fall and winter months so remember not to drain your finances with back-to-school shopping.  

A good tip is to set realistic expectations with your kids and plan to mix in used items. With the proper planning and budgeting strategy, you can still get everything you need for the school year! 

 

6 Things You Should Know About Financial Freedom: A Proven Path to all the Money You’ll Ever Need

When you think of financial independence, you probably think about people who got rich starting a business, or saved every dime and never had any fun.

Truth be told: There is a way to enjoy your pumpkin spice latte and avocado toast – and still retire early. Take Grant Sabatier. A practicing Buddhist and millennial, Sabatier had a paltry $2.26 in his bank account (plus $20,000 in credit card debt) when he was 24. Yet, in only five years, he grew his pennies to more than $1.25 million. Through his website, Millennial Money, and recent book, Financial Freedom: A Proven Path to All the Money You’ll Ever Need, he now shares his wisdom with the universe. 

While Sabatier’s book is primarily focused on how to achieve FIRE (Financial Independence, Retire Early), he also offers up tips for growing your money. 

Whether you’re aspiring to be part of the work optional set, or want to bulk up your savings account, here are 6 ways you can build your wealth:  

It’s about your daily habits

Your daily habits are key to building wealth. The average person spends 2,000 hours a year working and earning money. Yet, all it takes, according to Sabatier, is about five minutes a day to manage your money. 

And, when this becomes a part of your daily routine, it’s much easier to control your emotions and get comfortable with risk. This, in turn, will help you make better money decisions.

“While it might take some time to build a new habit, the lifetime impact of small daily decisions and habits can be massive,” says Sabatier.

For instance, something as small as checking the balance of your bank account through a bank app each day can help keep your finances in good shape. 

Other quick and easy things you can do each day? You can see how much you spent yesterday and how much you’ve spent this month. You can also keep tabs on how much you’ve earned from all your income streams to determine if you’re on track with your savings goals. You can also check your credit card and bank accounts to make sure you aren’t dinged with fees and there’s no suspicious activity. (If you’re a Chime Bank member, you’ll never be hit with fees. Never ever.) 

Maximize the potential of income, savings, and expenses 

If you want to grow your money quickly, you should consider maximizing your three “levers:” income, savings, and expenses. 

For example, if you cut back on your living expenses and earn more at the same time, you’ll have more money to save and invest. 

Skip the budget

Most people find budgeting to be tedious, time-consuming, and hard to maintain. To this end, Sabatier says budgets that make you feel deprived and guilty about your spending habits can backfire. Instead, he recommends focusing on lowering your top three major expenses instead — housing, food, and transportation. 

You can reasonably boost your savings rate by 25% (savings rate equals the percentage of your income you’re saving) by finding a cheaper place to live, getting roommates, or saving on transportation by buying a used car. You can also save money on food by growing your own veggies, bartering with your neighbors, or bulking grocery staples in bulk.  

Focus on the future value of a purchase 

That $20,000 you spent on a new car will cost you more than just $20,000. As Sabatier explains, if your hourly wage at your day job breaks down to $20 an hour, that car not only costs you 1,000 hours of your time, but also the future value of that money should you invest it. Using this calculator, if you earn an average of a seven percent return (compounded daily) on that $20,000, in 10 years you’ll have $40,272.35. In 20 years you’ll have a cool $81,093.11. 

Combine and maximize ways to make money

Sabatier lists four major ways to earn a buck: working for someone else at a full-time job; side hustling; entrepreneurship; and investing. And, if you combine different ways to make money, you’ll earn money faster while you have a fall-back income stream. 

For instance, if you have a day job and also a side hustle, and you get laid off, you still can depend on your side hustle. If you have a day job, you can also  “hack the 9 to 5” by making the most of your benefits, such as getting the full employer match on your 401(k) or asking for what you are truly worth. 

Here’s another example: If own your own business but also invest in real estate, you’ll have your investments to fall back on if your business has a few slow months. 

Automation is just the beginning

While “setting it and forgetting it” doesn’t take a lot of effort, automating your savings is just the beginning. Sabatier points out that in order to boost the amount you save to fast-track your wealth, you’ll need to put in the work to bump that savings amount from five percent to 10 percent, or from $100 to $200 a month. This takes serious work and dedication. 

If you don’t have a ton to start with, start small and go from there. It’s helpful to break up your savings goals to see how much you’ll need to save monthly, weekly, or daily. For instance, if you want to save $5,000 in six months, you’ll need to save about $834 a month, $195 per week, or $28 a day. 

Make the most of your time

As you learned from Sabatier’s tips here, we all have the potential to make more money. And, by adopting an enterprise mindset, you can build wealth even faster than you thought possible. Ready to jump in? 

 

Here’s How to Build $5,000 in Net Worth — While in Debt

Did you know that you can grow your money even if you don’t have a robust savings account? And, you don’t have to wait until all your debt is paid off before you start stacking the dollar bills in your bank account

In fact, you can rack up $5,000 in savings within six months — all while carrying debt. To get started, check out these pointers from Aristotle Hren-Boulis, a 25-year-old financial coach in Los Angeles.  

Figure out how much money you have to save and spend 

As Hren-Boulis says, “what gets tracked gets done.”  

Yet, instead of tracking every single transaction, which is as tedious as counting calories, focus on just your variable expenses. To start, figure out what your monthly income is. 

Next, pull out your fixed living expenses. These are those bills and expenses that you pay every month in about the same amounts. This typically includes rent, the minimum payments on your debt, utilities, and insurance. 

Pro tip: If you have a bill that you only pay a few times a year, like your auto insurance premium, you can divide that by the number of months and fold that into your monthly expenses.

Once that’s all done, you’re left with a number. Let’s say it’s $2,000. Divide that figure by the number of weeks in a month, which — if you want to be exact — is 4.28. If you have $2,000 beans after your fixed expenses, that’s about $467 a week. That’s how much you have to “play with,” and either put into your savings or spend on your other living expenses. If you have $1,500 after you subtract your fixed living expenses, that number is about $350 a week. 

Pay yourself first

After you pinpoint that number, divvy it up into savings and spending. How much should you save? Well, there’s no set number, as it depends on your lifestyle and preferences, says Hren-Boulis. 

“Everyone’s budget is different, so you’ll have to customize it,” he says.

So, if your weekly number is $467 after your fixed expenses are accounted for, try saving $200. The rest you can spend on your variable expenses, such as groceries, eating out, concert tickets, personal items, and clothes. Here’s the sweet part: If you save $200 a week, after six months you’ll have $5,000 in the bank!

Pro tip: To save time and brain space, automate your savings. If you’re a Chime member, you can choose to save a percentage of each paycheck with Chime’s Save as You Get Paid feature.

Budget weekly

Instead of budgeting for the entire month, break down your variable spending in weeklong chunks. 

When you’re starting out, Hren-Boulis recommends giving yourself more than you think you’ll need. To gauge this, you can go through your transaction history on a mobile banking app. Not sure where to start? Try $250 or $300 a week, and adjust your weekly savings accordingly. 

Start your budget on the weekend

Rather than beginning your budget on a Monday, Hren-Boulis recommends kick-starting your spending plan on the weekend. 

This way you’ll be in the flush and can enjoy yourself over the weekend. 

“Nobody wants to get to the weekend and run out of money. So if you start on the weekend, and spent $100, then you’ll have $150 Monday to Friday,” says Hren-Boluis. 

Of course, you’ll have to figure out what works best for you. For example, if you’re concerned with having enough money for groceries, you might start your budget on your weekly grocery shopping day. 

The important thing is to have enough money to spend so you don’t feel deprived or stressed out. 

Track your spending

You’ll only need to track your spending on your variable expenses. You can do this by way of jotting down notes on your phone or on a pad of paper, creating a simple spreadsheet, or using a money-saving app. 

“When you start tracking how much you’re spending each week, you start to mentally make trade-offs,” says Hren-Boulis. 

For instance, let’s say you have $30 left this week. You can think to yourself, “If I eat in tonight, I’ll have money to go out tomorrow night.”  

Spend what remains 

So what happens if you end up spending less in a week than the amount you had set aside? Hren-Boulis says it’s important to feel motivated and good about your money. 

For instance, if you end up having $100 left for that week, you could spend $60 on a massage and put the rest toward savings. And if you don’t feel deprived, then by all means save whatever is left over each week. 

He also doesn’t think it’s a good idea to “roll over” money into the next week.

“That’s when you start to get ideas,” says Hren-Boulis. 

Letting “extra” money spill over into subsequent weeks operates on the same principle of rollover minutes for cell carrier plans. If there are weeks where you have larger chunks of money to spend, you might get used to spending more than you can really afford. 

Track your net worth

Net worth isn’t your income, but rather your assets minus your liabilities. And, tracking your net worth is something you should get into the habit of, explains Hren-Boulis. 

Your assets include the value of your car, and how much you have sitting in your savings and retirement accounts. Your liabilities include all your debt — such as credit card balances, student loans, car loans, and personal loans. 

Try to check in on your net worth at least once a month. When you see that number growing, it’ll keep you motivated! 

Save those beans before paying off debt 

So, should the money you’re saving go toward debt or your emergency fund? 

Ideally, you should have some savings tucked away in an emergency fund before aggressively paying off your debt. Why? Well, if you don’t have much of a financial cushion, and the unexpected should occur, you might resort to using your credit cards, which could tailspin you into deeper debt. 

You do you

Following these tips is just one way you can go about saving $5,000 within six months. But, no matter how you slice and dice things, the important thing is to consistently save the same amount each week. Are you ready to give it a try?

 

6 Tips for Saving Money on Gas for Your Last-Minute Road Trip

What’s better than a last-minute road trip? 

Regardless of whether you plan to drive to the beach or the mountains, a road trip is the perfect way to see some of the country’s finest scenery.

At the same time, the cost of gas can make budget-conscious travelers worry about whether they can afford the trip. According to the American Automobile Association (AAA), the average price per gallon of gas sits at $2.77. So, if you’re taking a long trip, that can easily set you back big bucks. 

Fortunately, you don’t have to write off the idea of a road trip. There are plenty of ways you can still afford that vacation, fuel and all. Take a look at our top 6 tips to save money on gas. 

1. Lighten Your Load

Do you really need an entire tool set, sack of mulch, or hockey equipment for your trip? If there’s anything you can take out of your car before you depart, do it. According to the EPA, an extra 100 pounds in your vehicle can reduce your miles per gallon by about one percent. 

Have a heavy car? Not to worry. The EPA says the reduction is based on the percentage of extra weight relative to your vehicle’s weight. So, extra weight actually affects light-weight vehicles more than heavier ones. 

2. Check Your Tire Pressure

When was the last time you checked the tire pressure on your vehicle? 

Ensuring your tires are properly inflated is easy, and it goes a long way to saving on fuel costs. In fact, you can improve your gas mileage by 0.6 percent on average, or about two cents per gallon, by making sure your tires are inflated properly. In some cases, you can improve your gas mileage by as much as three percent! Plus, under-inflated tires are dangerous, so you’ll want to double-check them anyway before you take off.

To inflate your tires, you will need to know what PSI your tires require. To find the proper PSI, you can check the vehicle owner’s manual, or check to see if you have a sticker inside the driver’s door. 

3. Download a Gas Savings App

Inevitably, you will need to fill up on gas while you’re on the road. While you probably have a good idea of which gas stations have the best fuel rates near your house, you may not know where to find cheap gas while you’re traveling. 

Luckily, you can take advantage of mobile apps which will tell you the best gas prices anywhere. GasBuddy, for example, is a free app, which will pull up the prices of gas at gas stations near you. This way, you can choose the most affordable option. 

GasBuddy even offers five cents off per gallon if you pay through their GasBack program on the app. That’s a pretty slick way to save money

4. Set the Cruise Control

Feel lazy using cruise control? Get over it! Setting the cruise control can improve your vehicle’s fuel efficiency.

To that end, Edmunds conducted a study to test how using cruise control improved fuel efficiency. In the test, they drove four different cars around a 55-mile loop. The first time, they set the cruise control to 70 miles per hour. The second time, they turned the cruise control off, and the speed varied between 65 and 75 miles per hour. By setting the cruise control at a moderate speed and avoiding aggressive driving, they saw a savings of up to 14 percent, with the average savings sitting at seven percent. 

There is one instance, however, when Edmunds recommends turning off the cruise control: When you’re driving over a hilly terrain. Why? Cruise control doesn’t allow you to “coast” downhill, and instead, your car will use extra gas as you continue to downshift to lower gears. 

5. Take Your Car for a Tune Up

Generally, it’s a good idea to have your car looked over by a mechanic before you hit the road. This keeps you safe and secure. But a tune-up can also help you save on gas. 

According to Popular Mechanics, it’s a good idea for a mechanic to check the car’s hoses, brakes, fluid levels, filters, coolant, radiator, and tires. Ensuring your vehicle is road ready and safe also means the car will likely be more fuel efficient. 

6. Choose the Car with the Best Gas Mileage

Are you taking your trip with multiple people who own cars? If so, perhaps you and your friends can agree to use the car with the best gas mileage.

While people are often tempted to take the biggest car on a road trip, if you can get by with a smaller, more fuel-efficient vehicle, this may be a better choice.

For example, an SUV gets about 30 miles per gallon on the highway, compared to a hybrid, which gets more like 50 miles per gallon. Yes, the hybrid may be smaller and less comfortable, but you can save a lot of money. For example, if you drove that SUV 500 miles and paid $2.77 per gallon for gas, that trip would cost you about $46.16 in fuel. Guess how much it would cost to drive the hybrid the same distance? About $27.70. You’d pocket more than $20!

Hit the Road!

Now that you and your vehicle are ready to go, it’s time to enjoy your road trip without breaking the bank. 

Another pro tip: Start saving money now and this way you may have some extra spending money to take along with you. Get ready to hit the open road!

 

Here’s What a Documentary About FIRE Taught Me About Money

What do you think of when you think of retirement? Sleeping in? Sipping drinks on the beach? 

Until recently, almost every retired person I knew was over 65 years old. I’ve met a few people who managed to retire early – in their late 50’s or early 60’s – but they are the rare exception. The rule I had learned from an early age was that if you work hard, save money, and spend 40 years in the workforce, you can retire. 

That’s why, when I first heard about the FIRE movement, I was confused. FIRE, which is short for Financial Independence Retire Early, continues to gain momentum. In fact, there’s even a new documentary called Playing with FIRE, which chronicles one family’s quest to reach early retirement. 

Playing with FIRE follows 35-year-old Scott Rieckens, his wife Taylor, and their toddler Jovie. I watched this movie as a skeptic (I mean, how can they really retire?) But, by the end, I was re-thinking some of my own financial decisions.  

Here is what this movie taught me about money:

Question your biggest three expenses

Americans spend the majority of their income on housing, transportation, and food. That’s really not surprising — we need somewhere to sleep, we have to eat, and we need a way to get to work. But, I’ve always considered these expenses to be out of my control. I thought I needed to spend money on housing, food and transportation. That meant I’d have to save money on the less impactful areas of my life – things like cutting out that latte and avoiding excessive shopping.

Yet, Playing with FIRE showcases people who have reached financial independence by deciding to live differently than the norm. The highlighted family, in fact, ditched buying a home to travel the world instead. They proved that changing one of your major fixed costs can make a huge impact on your financial situation. 

Are you spending on what makes you happy?

Early in the movie, Scott and Taylor had just discovered the idea of FIRE, and they were decades away from retiring. Their monthly expenses in the big three were high: They lived in a beach community, spent $2,000 per month on food, and each drove a nice car. 

Before they changed any of their spending, they did a simple exercise. They each separately made a list of the things that made them happy on a weekly basis. 

This was Scott and Taylor’s first epiphany: Most of the things on their list didn’t cost any money. Neither of them mentioned the beach, driving their cars, or going out to pricey sushi dinners on their happiness list. Why were they spending so much each month on things that didn’t really make them happy? 

Viewing your money choices through the lens of what makes you happiest makes perfect sense. A quote from The Minimalists in this movie really drove this idea home: “We spend money we don’t have to buy things we don’t need to impress people we don’t like.”

Small changes can buy back years of your life

Understanding how current spending choices can impact your future financial situation is difficult. How often do you weigh the cost of going out to dinner, buying a new jacket, or driving a certain car against how much longer you need to work? 

Like many people, Scott and Taylor struggled to see how the choices they were making now could impact their future life. At one point, they sit down with a financial calculator and determine what would happen if they ditched one of their luxury car payments. Technically, they could afford the monthly car payments. However, by forgoing that cost, they could shave five years off their working lives.

Your savings rate holds the key to financial independence

The movie lays out some startling facts: 34% of Americans have no savings and 78% live paycheck to paycheck. It’s clear we could all use a lesson in saving more money.

But how to do this? The folks in the FIRE community focus on your savings rate as a simple way to understand how many years you’ll need to work before you retire. 

To calculate your savings rate, take the amount you save and divide it by your income. For example, if you earn $4,000 per month and save $300, your savings rate is 7.5%. 

According to calculations in the movie:

If you save five percent of your income, it will take you 62 years of work to reach retirement

If you save 10% of your income, it will take you 51 years to reach retirement

If you save 20% of your income, it will take you 37 years to reach retirement

If you save 50% of your income, it will take you 17 years to reach retirement

For your savings rate to change, you either need to earn more, spend less, or do both. In Scott and Taylor’s case, they start out with an eight percent savings rate. By the time the movie ends, they’ve made enough changes to their spending to achieve a 50% (or more) savings rate.

This isn’t about money

FIRE isn’t really about money. It’s not even really about retirement. What I failed to understand before watching the movie is that FIRE is about having the ability to make choices in your life. 

The movie asks you to imagine what it would feel like if you didn’t live paycheck to paycheck. Imagine if you were debt-free, or if you had a full year’s worth of expenses saved. How would that financial freedom change the decisions you make?

Even if you don’t want to retire early, you can probably get behind the idea of financial freedom. Wouldn’t it be nice to breathe just a little easier between paychecks, change careers if you want, and not panic if lost your job? That’s the freedom that FIRE creates. 

Perhaps the thing that struck me most about the movie was this piece of wisdom: “It’s not about having all the money in the world. It’s about doing the best that you can with the money that you do have.”

This inspired me to think about how the financial choices I make today can impact my freedom tomorrow. 

 

What To Do With a Three Paycheck Month & How You Can Save Two Extra Checks Per Year

Are you paid on a bi-weekly pay schedule? If so, did you know that there are two months every year when you’ll receive three paychecks instead of two?

While it may be fun to go out and spend the third paycheck you receive during these two months, there are better ways to use this extra money. For starters: You can create a monthly budget based on two paychecks a month and then make smart money decisions with the extra funds. 

Learn more about bi-weekly and bi-monthly pay schedules, and see how you can maximize your money during your three paycheck months. 

Bi-weekly Pay vs. Bi-Monthly Pay  

Before we dive in, it’s important that you know the difference between bi-weekly and bi-monthly pay schedules.

A bi-weekly pay schedule is the most common type of pay period used by employers. If you are paid this way, you’ll generally get paid on a certain day, every other week (such as every  other Friday). This means you’ll receive 26 paychecks a year and 27 during a leap year. It also means you’ll get three paychecks a month twice a year. 

A bi-monthly pay schedule, also called semi-monthly pay, means you get paid twice a month. Pay dates are typically 15 days apart and occur perhaps on the first of the month and 15th or 16th. You may also get paid on another random set of dates that are 15 to 16 days apart. With this type of pay schedule, there are 24 pay periods in a year – with no three paycheck months. 

In this story, we get into the nitty-gritty of bi-weekly pay periods, as this is what gives you an extra two paychecks a year. Read on to learn seven ways you can use your extra paycheck money wisely by planning ahead and responsibly spending and saving your hard-earned cash. 

1. Pay Off or Reduce Your Debt

When you get a third paycheck in a month, instead of going out and spending that cash, try using it to pay off your debt. For example, you may be able to pay down credit card balances, chip away at your medical bills or even make extra payments toward your student loans or other debts.  

2. Start an Emergency Fund 

Do you have an emergency fund, or money set aside in a specific account to pay for unexpected expenses, like medical bills or car repairs?

If you don’t have an emergency fund, you’re not alone. According to Bankrate’s latest Financial Security Index, about 28% of Americans have no emergency savings

At a minimum, many financial experts recommend you have at least three months of living expenses saved up into an emergency account. But, don’t fret. Whether you’re starting from scratch or trying to build your emergency fund, your extra two paychecks can help you meet this goal. 

Pro tip: Pretend you never saw those paychecks and auto-transfer them immediately into your emergency fund as soon as you get paid. If you’re a Chime member, this is super easy with Chime’s Automatic Savings feature. 

3. Invest in Your Retirement Savings

You probably know about the importance of saving for retirement, right?

Whether you have an employer-sponsored 401(k) plan or an individual retirement account (IRA), you can always add extra money to your account – helping you build up your fund even faster. So, perhaps consider putting your two extra yearly paychecks right into your retirement account. 

4. Catch up on Home Maintenance & Car Repairs 

Have you been putting off home repairs or car maintenance because you’re low on cash?

Think of your three paycheck month as a great way to get these repairs taken care of, paying for them in one fell swoop. 

5. Start a Vacation Fund 

It’s summertime and we know you’d probably like to take a vacation. But, even if you travel on a budget, you know this means you’ll be spending money that you wouldn’t ordinarily spend.

With this in mind, wouldn’t it be nice if you had a vacation savings account, with money sitting there and ready for you to use on your next vacay? Why not open that savings account right now and deposit your extra third paycheck directly into the bank?

Without even thinking about it, you’ll be able to go on vacation without stressing about how you’ll pay for it. 

6. Save for Christmas Presents 

We know the holidays may seem way off in the distance. But, before you know it, Christmas will be here and you may be whipping out your credit card to pay for those presents. 

But, what if you used your extra third paychecks toward these gifts? All you have to do is deposit these paychecks into a holiday savings account or perhaps your regular savings account (just don’t spend it!) The money will be ready for you when Christmas rolls around and you can enjoy holiday shopping – without the stress! 

7. Treat Yourself (But Only a Little)

If you’ve been diligent in sticking to your budget, there’s nothing wrong with using a small percentage of your extra third paycheck to splurge on something you want. The operative word here is “percentage.” So, sock those two checks away and then maybe take 10-25% of this cash and treat yo’self to something you want, like dinner with friends, a manicure or a fitness workshop. You get the point. 

Use Your Third Paycheck as a Financial Clean Slate

As you can see by the seven options here, you’ve got many ways to use your three paycheck months to make financial improvements in your life: from paying down debt, to starting an emergency fund, to leveling up your savings account, and more. 

Instead of spending those checks recklessly, you can use these three paycheck months to get closer to your financial goals. Are you ready to give it a try?

 

7 Ways to Build Wealth in 10 Minutes or Less

What would you give up so that you’d never have to worry about your finances? Pumpkin spice lattes for life? Instagram for a month? 

Many of us hate thinking of money, let alone managing it. Yet, neglecting to make your finances a priority can lead to dire circumstances down the line. 

But, guess what? Quick, no-brainer ways to build your wealth do exist. Here are seven ways you can grow your money in 10 minutes or less: 

1. Check Your Bank Balance

This seems like a no-brainer. But, if you don’t know how much you have in the bank, you run the risk of spending more than you have. 

Just doing a quick check through a banking app each morning makes a big difference. This will help you figure out how much you can reasonably spend in a given day, whether you can afford to go out with friends, or if you’ve got enough available in cash to splurge on that pair of on-sale sneakers. 

2. Create a Money To-Do List

Perhaps you keep a to-do list for your daily tasks. Why not create one for your money? I have a running to-do list of financial housekeeping that I need to tend to. This sometimes includes: figuring out my “going out” budget for the week, making sure my bills will be paid on time, or determining if I need to close an account.

Because I freelance, I also need to take care of gig economy-related tasks, such as sending invoices, balancing the books in my accounting software, and setting aside money for taxes. I make a point to check off a few items at least once a week. If I don’t make the time to do this, things will just pile up. 

I know, it seems like a major snoozefest. But you could set a date with yourself, or see if any pals would be up for a short session – either in real life or virtual. It’s nerdy fun and keeps away the boredom. 

3. Work on Your Passive Income Project

Have a killer idea for selling shirts? Or maybe you’d like to launch a digital product, such as a course or series of books? Spend 10 minutes a day on your passive income project to figure out how you can turn your idea into cash.

I’m currently working on the first of a series of books, and I try to crank out a certain number of words each day.

If you’re having trouble giving some love to a passion project, consider incentivizing yourself. For each checkpoint you pass, treat yourself to something small. And once you’ve completed the project – besides giving yourself a high-five – offer yourself something that’s meaningful and rewarding to you. 

4. Negotiate Your Bills

Negotiating for a lower monthly bill, annual fee or subscription can net big wins over time. Let’s say you nix a $90 annual fee on a credit card. If you keep that card for five years, that’s a $450 savings. Or, if you shave $10 off your Internet bill each month, that’s $120 after 12 months. 

This usually takes 30 minutes max, and at the very least, the customer service rep will check to see what she can offer you. For instance, your current cell phone plan may offer up a promo you can hop on or existing discounts that you’re unaware of. 

If you get tripped up on what exactly to say to a customer service rep, start with the following script: 

Hello. I am calling today to see what deals or promotions you might have for X. I did some research and [competitor X] is offering Y, while competitor Y is offering Z. I’ve been a loyal customer in good standing for X years. Will you be able to match it? 

5. Pay Yourself First

You may have monthly bills and debt to pay off. But what about your own financial goals? Perhaps you want to save up to buy a house or fund a sabbatical to focus on a passion project. The immediate obligations that are screaming “me first” get in the way of longer-term stuff. 

So, try paying yourself first, which means putting aside some cash toward these important, meaningful goals. 

6. Automate Your Savings

Automating your savings and bills will make your financial life easier.

And, when it comes to automating your savings, try to start small. It doesn’t have to be a ginormous amount. Can you swing one dollar a day? Or maybe $10 a week? That adds up over time. Just think: You can put that extra cash toward an emergency fund or into another savings account.  

If you’re afraid that an overcharge will slide past you, set alerts. For example, I set email and text alerts each time a bill gets paid.

7. Round Up Your Transactions

For every purchase you make on your card, you can round up the transaction to the nearest dollar. Spend $3.50 on a latte? Round it up to four dollars, and save fifty cents. If you make 30 transactions over a week, that spare change can add up quickly. 

You can do this manually at days’ end, which should take a few minutes. Or if you’re a Chime Bank member, check out the Save When You Spend feature. 

Greater Wins In Less Time

The name of the game is to try to net larger wins with your money in short chunks of time. 

Making it a priority to build your wealth, and doing a little bit each day will organically lead to more money in the bank for you. Are you ready to grow your wealth in just 10 minutes a day?

 

Recommended Budget Category Percentages

We all know how beneficial a budget can be. 

For starters: A budget outlines your spending plan so you know exactly how much money goes toward each expense. Budgets are also extremely helpful when trying to decide how much you have available to save and how much money you can put toward paying off your debt. 

At the same time, there are many different ways to budget. One of the most common budgeting strategies I recommend is to set up budget category percentages. For example, a common rule of thumb is that housing costs shouldn’t exceed 30% of your income. What about the rest of your budget categories? Luckily, they can be broken down by percentages as well. 

Read on to learn more about creating percentage categories for your budget. 

Start with the Basics

If you’re new to budgeting, using the 50/30/20 approach is a great starting point. 

With the 50/30/20 budget, you allocate 50% of your income toward living expenses and necessities, 30% toward wants, and 20% toward debt and savings. 

Here’s how this would look. Say you bring home $3,000 each month. Under the 50/30/20 budgeting method, you’d put $1,500 toward living expenses and necessities, $900 to wants and variable expenses, and $600 toward debt and savings. 

While this method is super easy to use, it may not fit in with your particular goals. For example, you may want more wiggle room for your savings account

Get a Little More Specific

If you want to venture beyond the 50/30/20 budgeting method, you can get more specific and add additional percentages while breaking up your spending into more categories. 

Think about your goals and lifestyle. What do you value spending money on? How much are your core necessities? Do you have debt? What are your savings goals? 

Start tracking your spending to see what your current budget categories are. It can be eye-opening to see the percentage of your income that you spend on things like dining out, transportation, and even bills and insurance. 

So, think about setting your own budget percentages based on your preferred spending patterns and goals. With that in mind, here are our recommended budget category percentages that can help you get ahead. 

Basic Recommended Budget Category Percentages

Housing (mortgage and rent costs): 25% 

Utilities: 5%

Food: 10%

Transportation: 5%

Insurance (includes medical, auto, renter’s etc.): 15%

Personal (+ household expenses): 5%

Entertainment/Recreation: 10%

Charitable Giving: 10%

Savings/Debt: 15%

Here’s how this budget would break down if you bring home $3,000 each month:

Housing (mortgage and rent costs): $750

Utilities: $150

Food: $300

Transportation: $150

Insurance (includes medical, auto, renter’s etc.): $450

Personal (+ household expenses): $150

Entertainment/Recreation: $300

Charitable Giving: $300

Savings/Debt: $450

Keep in mind that these are pretty standard budget percentages if you want to have enough money to afford your needs and wants. As you can see from the example above, you still can’t afford to splurge on housing costs, but you’ll have plenty of money for groceries, dining out, giving, savings, and debt payments. 

Once you have your ideal budget in place, you can start allocating money to different expenses when you get paid

Aggressive Recommended Budget Category Percentages

While the basic recommended budget category percentages may work well, you may want to take it up a notch if you have some aggressive savings goals and are willing to live frugally. 

If you are looking to pay off debt quickly or save to meet an important goal, here are some budget category percentages you can try.

Housing (mortgage and rent costs): 20% 

Utilities: 5%

Food: 7%

Transportation: 3%

Insurance (includes medical, auto, renter’s etc.): 10%

Personal (+ household expenses): 5%

Entertainment/Recreation: 5%

Charitable Giving: 5-10%

Savings/Debt: 40%

Here’s how this budget would break down if you bring home $3,000 each month:

Housing: $600

For this amount, you’d likely have a roommate or rent a smaller apartment to keep housing costs low. If you own a home, you may also rent out a few rooms to offset your mortgage costs. 

Utilities: $150

If you have roommates, you can split the cost of utilities to save money. Perhaps you can use Chime’s Pay Friends to send fee-free mobile payments if you’re splitting bills. You can also limit your use of electricity during the day by turning off lights as well as reducing heating and cooling costs by using a programmable thermostat.

Food: $210

Although the amount is quite low, this may be enough for one or two people. If you cook most meals at home, take advantage of sales, and buy ingredients and whole foods instead of packaged food, you can make this budget work. 

Transportation: $90

While this amount is also low, perhaps you work close to home and can keep your fuel costs down. Or, maybe you can use alternative transportation like walking or cycling. 

Insurance: $300

For this amount, you likely shop around for the best insurance rates and drive an older car that doesn’t cost much to insure. You also receive benefits from your job which helps keep this category low.

Personal (+ household expenses): $150

This amount is just enough to buy basic needs and supplies for the house as well as some affordable personal care once or twice a month. 

Entertainment/Recreation: $150

Your dollars can be stretched with free local activities and experiences along with using coupons and deal sites to dine out. 

Charitable Giving: $150-$300

Although you’re determined to save and/or pay off more debt, this budget still allows for you give back to others in need. 

Savings/Debt: $1,200

Accelerated debt payments and savings contributions will allow you to hit your financial goals faster, even if you don’t have a large income. 

The Power of Budgeting

It’s quite possible to save more than $14,000 annually on a $40,000 salary with the aggressive recommended budget percentages above. 

Yet, regardless of whether you prefer an aggressive, basic or other type of budget, breaking up your spending categories by percentages is powerful. It shows you exactly where your money is going and how much of your income is used for certain expenses.  

Feel free to use this new perspective and play around with your own budget category percentages. This will help you determine where you spend and how much you can save. Are you ready to give it a try?

 

5 Ways to Manage Your Side Hustle Finances

If you’ve just started your first side hustle (or two) – welcome to the club! It’s a great feeling to have extra cash rolling in every month. But did you know that your side gig will also require a bit of cash flow management

If you haven’t created a game plan to manage your side hustle finances yet, fret not! Keep reading to learn our top five tips for getting a handle on your extra earnings. This way you can get closer to your financial goals faster than you ever imagined.

1. Never stop tracking

If you aren’t carefully tracking all the extra money you’re bringing in (against your side hustle expenses), then you’ll never get a true sense of whether the effort you’re putting in is paying off. The good news is: You don’t necessarily need a fancy bookkeeping system to keep tabs on your side hustle earnings.

“I track it all in my spreadsheet throughout the month,” says Diana Farmen, a middle school teacher and founder of Diana on a Dime

There’s also another benefit of tracking your side hustle finances on a consistent basis. Whether you’re bringing in an extra $500 or $5,000 a month from your side gigs, you’re officially an entrepreneur, with an obligation to file your taxes. Farmen knows all too well about juggling side hustles and keeping track of her finances. She’s got five income streams, including her full-time teaching job. 

Farmen says that her spreadsheet makes it easy for her to calculate how much she needs to set aside for paying taxes on the income she brings in. Without this step, she would be in for a bit of a shock when tax time rolls around. But, by estimating her taxes throughout the year, she is prepared to handle the payment when she files her taxes in the spring.

You can also take a look at the IRS website to figure out the different types of small business deductions you can take. This way you can begin to keep track of these expenses month to month. For example, you may be able to deduct office supplies, gas mileage, Internet services and more.

2. Be careful how you budget

Some side hustles are inconsistent in nature, so it’s important to adjust your budget accordingly. In Farmen’s case, her budget is based only on her salary.

“As I make money through side hustles, I add it to the income section of my budget and in my notes I add how much I set aside for taxes, if needed,” she says. 

At the end of the month – once she has her final numbers – she determines a purpose for her side hustle income. This usually involves putting extra payments towards her student loans, emergency fund, or sinking fund.

3. Keep things separate

In this case, out of sight, out of mind, is actually a good thing! 

One of the best ways to manage your side hustle finances is to keep your extra income in a separate bank account so that it isn’t commingled with regular earnings from your 9 to 5 job. This makes it a lot less tempting to blow through those extra earnings! Plus, if you’re a Chime member you can also watch your savings grow by using your Chime Visa Debit Card to make purchases. When you use your card, Chime will round up each purchase you make to the nearest dollar, and transfer the round up amount right into your Savings Account.

4. Be cautious when taking on debt

If you can start a side hustle using your savings or better yet, find one that requires virtually no start-up money, that would be ideal. However, if you’re looking to scale your side hustle gig into a full-blown business, think about using debt only if you have no other choice. Or, use debt in small increments with a plan to pay it back fast.

“I sometimes see people investing in five-figure web design, or fancy editing, or (full-blown) photoshoots, without first having done basic market research or getting clear on how they (plan to make) money. So, suddenly they find themselves in all this debt with no way to pay it back,” says Amanda Abella, author of Make Money Your Honey.

In her case, Abella leveraged debt incrementally to avoid overextending herself. 

“I knew what I could handle on a credit card, for example: the cost of mentorship or a (particular course). And then I was under a deadline to hustle and find new clients to pay it off in time – which I always did,” says Florida-based Abella, who is also a Latina brand ambassador. 

5. Outsource to grow your business

This usually comes into play once your side hustle game starts to grow. 

Leah Gervais, founder of Urban 20 Something says that “outsourcing, both personally and professionally, was critical in my business growth.”

“Business-wise, I started with things that could be automated. This included email marketing, scheduling out social media posts, and using Quickbooks to track my income and expenses. Eventually, I started looking at what tasks I did daily or weekly that made me the least amount of money and/or could be done by someone else, and started outsourcing them. Things like graphic design, social media management, and podcast production.”

Gervais also looked at other obligations that took up her free time and prevented her from working more and started outsourcing those as well. 

“I started hiring a cleaning service to come and that shaved hours off of my week. I also started using a grocery delivery service to save time. These have not only helped my business but my sanity,” she says.  

Final word

With these five side hustle money management tips in mind, now is the perfect time for you to start earning extra cash with a side gig. Are you ready to give it a go?

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