In debt? Can’t seem to save for retirement, or other important goals? Need a budget? (yuck!)
There is no real science to budgeting. And budgeting has a negative stigma to it (it has to be hard and based on self denial, etc).
I believe budgeting should be as simple as possible with everything set up on automatic (this means money towards your goals) … and then it is okay to spend the rest any way you like (this is the philosophy in the book referenced in the below blog links … the book gives you more details how to get yourself going in that direction … I hope you like to read, but it is an easy read).
So here is my overall suggestion:
1) Determine how much of your budget you can work with towards your goals. Ideally 10 to 20%, but you should start with at least 5%, of your take home pay, to make any meaningful headway.
2) Your first problem is debt … you have to now pay for yesterday’s consumption (debt) before you can begin to save for tomorrow’s consumption (retirement). This calculator will help you set for yourself a payment schedule. Let’s say you can set aside $300/mo to start with simply as an example (note … once your budget gets used to $300 per month and then increase it every couple of months by $50 until you hit your 20% target). You also don’t want to charge anything anymore … live within your means (the 80% of your take home pay). The calculator shows you the consequences of continuing to charge or buy on credit.
3) Now … AFTER you have paid off your debt … THEN you re-divert the money that used to pay off debt to building a reserves fund (and other goals) and for retirement. If you never use the reserves fund money then it rolls into use for retirement. How much towards reserves, other goals, and retirement depends on your priorities … but think hard and well about priorities because those will have long term consequences too.
It is a simple 3 step process … but it takes dedication to yourself to make it happen.