My Thoughts: On Budgeting

Photo by Steve Johnson on Unsplash

On how I manage my monthly 2k 😉

When it comes to budgeting and investment, lately I have been flexible and more long term oriented because I have been able to understand that… hol’ up, Siri play, “I can’t kill myself” by Timaya.

Anyways, Back to the main topic…

Today, I will just scratch on the surface and share how I currently manage my income. I do not believe in splitting my income via percentages when it comes to budgeting. In my opinion, there is a point your income surpasses and you do not necessarily have to increase your expenses, this is usually about €65,000/year (random estimate).

I plan to delve more into this topic in the nearest future but for now, let me share the 4 major categories I split my income into and will suggest you also split the funds into separate accounts/sub-accounts by category. I will divide my income in percentages but this should only be a guide to create your budget.

Emergency Funds

Yes, This is the first on the list and most unpopular category people consider when budgeting. I believe it is important because we need to at least try to shield ourselves from the “unknown”. Also called the rainy day funds, unlike regular savings, it is usually a target saving and we stop once we reach our target. The target for your emergency fund is usually between 3–6 months of your expenses. This account should be easily accessible and used for only emergencies or career-threatening events and must be reimbursed. Make the emergency funds a priority and try to hit your target as fast as you can.

Expenses

This category consists of our essentials, expenses that we cannot avoid. Like our rent, bills(internet, electricity, gas), groceries, transportation, insurance, family etc. Your expenses category should not exceed 50% of your income. Expenses can be kept in your day-to-day spending account.

Living Expenses

You will like this category because it is for you and yourself only. I should have called it the “Enjoyment expenses”. In this category, you get to fund your lifestyle, get whatever is important to you. Some examples are clothes, shoes, drinks, vacation, dining, make-ups, bags, watches etc. Living expenses could be about 20% of your income.

Savings

A wise man once said, “It’s Not How Much You Make, But How Much You Save/Invest”. This category might be the last on the list but it is the most important. Whenever your income hits your account this should be your first debit and I strongly advise you to automate this process if possible. My savings is divided into the three sub-categories below

Long Term Investment

This could be your retirement funds, mortgage savings or a route to financial freedom. I usually advise that the investment here should be between low-mid risk depending on your risk appetite. Long term investments should be about 15% of your income.

Short Term Investment

This investment can be used to take advantage of interesting investment opportunities or to fund personal businesses. The investment here can be between mid-high risk depending on your risk appetite. Short term investments should be about 10% of your income.

Cash Savings

If you are an active investor, you can move the funds in this category to your long/short term investments, but If you are a defensive investor or you enjoy stacking cash in the bank, then you should save the remaining 5% of your income in your savings account.

Overview

Based on my monthly €2,000…

Emergency Funds — 3–6 months of your expenses. [€3,000-€6,000]

1. Expenses — 50% of your income [€1,000]
2. Living Expenses — 20% of your income [€400]
3. Savings — 30% of your income [€600]
   i. Long Term — 15% [€300]
   ii. Short Term — 10% [€200]
   iii. Cash Savings — 5% [€100]

Depending on your financial goals, all of these categories are flexible. Find what works best for you and feel free to share in the comments section.

NB: I am not a Financial Advisor

This post is part of my #My10DayWritingChallenge Here