money making

Creating a budget is a great first step to take when looking to improve your finances. Make 2021 your best year with these great budgeting tips for 2021. Learning how to create a budget and save money with your plan is easy, and you can get started today with this post about budgeting your money. 

Are you looking to take control of your financial situation? Would you feel better with some more money in the bank? Do you want to win with your finances?

One way to take control of your personal finances and save more money is to budget.

While budgeting isn’t the sexiest or most fun thing to do with your time, setting a budget and sticking to your budget can be the key to reaching your financial goals.

In this post, I’m going to share with you how to create a budget in the year 2021 in 5 easy steps.

What is a Budget?

First, what is a budget?

A budget is just a plan for how you spend your money every month.

That’s it. Nothing fancy. It’s just you telling your money what to do.

But it can be a lot more than that if you’re constantly stressed over your finances. When you make a budget, it suddenly becomes a lot easier to:

  • See where your money is going
  • Figure out what you’re wasting money on
  • Create a plan for paying down debt
  • Build an emergency fund for rainy days
  • Save and invest for retirement or your kids’ college
  • Plan out your financial goals
  • Understanding your spending patterns and triggers
  • Stop freaking out over money

That last one is really important.

Money is not everything in life, but it is a tool you can use to create the life you want and deserve – without stress.

How to Create a Budget in 5 Steps

To create a budget, all you need is a pencil and paper, but using a computer can help if you are a spreadsheet nerd like me 🙂

Creating a budget isn’t too hard if you know the right steps to follow.

Below are the 5 steps you can take to create a budget:

  1. Learn about the Different Budgeting Methods
  2. Identify What You Enjoy and Don’t Enjoy Spending Money on
  3. Track Your Personal Finances to Understand Your Income and Expenses
  4. Understand Your Spending Habits and Eliminate Any Spending Weaknesses
  5. Implement, Track and Tweak You Budget Over Time

Now, let’s dive into each of these budget creation steps in more detail.

1. Learn about the Different Budgeting Methods

Budgeting doesn’t have to be hard or complex, and there are a number of different ways to make sure you are spending your money on what brings you joy.

First though, it’s important to learn about a few budgeting methods, and figure out which one makes most sense for you.

The four budgeting methods I’d like to share with you are:

  1. The 50 / 30 / 20 Budgeting Method
  2. The 80 / 20 Budgeting Method
  3. The 60% Solution Budgeting Method
  4. The Cash Envelope Budgeting Method

Let’s dive into each of these in the next section.

emergency fundBudgeting Methods to Learn Before Starting to Budget

The 50 / 30 / 20 budgeting method involves spending 50% of your take-home pay on needs, 30% on wants, and 20% on investing and/or debt repayment.

With the 50 / 30 / 20 budgeting method, you only have 3 line items to track every month – it cannot get much simpler than that!

What this method requires is for you to clearly define what is a need vs. what is a want in your life.

After defining your needs and wants, you just need to sort all your monthly expenses into a need or a want, and add up each category.

The 80 / 20 budgeting method is an even easier version of the 50/30/20 method.

If you don’t want to make the effort to discern between wants and needs, you can just lump them into one.

In this budgeting method, 80% goes to your wants and needs, and 20% goes to investing and/or debt repayment. That’s really all there is to it!

The next budgeting method is the 60% Solution. This budget has five categories for your GROSS income (ie. pre-tax) outlined below:

  • 60% to “commited” expenses
  • 10% to retirement savings
  • 10% to long-term savings
  • 10% to short term savings
  • 10% for “fun money”

This budgeting method effectively suggests you can live off 60% of your gross income.

This budgeting method really simplifies expense tracking since all your “committed” costs are lumped into one category.

However, it carries the same challenges as the 50 / 30 /20 method since 60% may not work for your household.

Finally, the cash envelope budgeting method is the oldest form of budgeting out there.

In fact, the word budget originated from the Old French word for purse.

While the cash envelope method requires the most effort out of any method on this list, it is still relatively simple.

The cash envelope budgeting method requires you to go old school by using nothing but cash for all your purchases.

Now that you’ve learned about these different budgeting methods, let’s move on to step two.

2. Identify What You Enjoy and Don’t Enjoy Spending Money on

I have a few questions for you to think about when thinking about your budget.

These questions are more related to your life, than money, and will bring the answers you need to start improving with your finances.

The questions for you are:

  • What are you passionate about?
  • What do you enjoy doing most?
  • Is there anything holding you back from doing these activities more?

The purpose behind these questions is to get you thinking about MATTERS to you.

For me, I’m passionate about spending time with my family, being healthy and active, and learning.

Since these are my passions, then I need to align my spending habits with these passions.

What does this look like in practice?

  • For my health, I’m not afraid to spend a little more money on healthy food and supplements. I am finding spending some money on a relatively nice bike, a rock climbing gym membership, and equipment which can help me reach my fitness goals.
  • With learning, I’m not afraid to invest in myself and buy a course, a book or seek help.
  • For spending time with my family, I’m fine spending money at a golf course my dad wants to play, or taking my family out to dinner once in a while.

For you, figuring out what you like spending money on with make the budgeting process easier.

Also, you can then figure out what you don’t like spending money on to come up with ideas to eliminate through your budget.

3. Track Your Personal Finances to Understand Your Income and Expenses

Next, it’s time to get a complete picture of your personal finance situation.

The 4 metrics you need to know for personal financial success when it comes to tracking finances are:

  • Net Income
  • Gross Expenses
  • Savings Rate
  • Net Worth

Below we dive into each of these metrics and statistics so you will know how to calculate them.
gross income

Net Income

Tracking your net income over time will give you a picture of what you are working with financially.

Let’s start off with an easy one: net income. What did you make in income, after taxes, for a given period?

The easiest way to do this is by just looking at a recent pay stub.

You’ll see your gross income listed out, which is what you made before taxes.

It should also list out all of your deductions, like FICA, federal, your state tax (if any), etc.

If you have investment income, or have any other freelancing or consulting income, you can find your gross income by adding up what you are paid each month.

Below gross income, if you’re looking at your pay stub, you’ll find your net income, which is the income remaining after all taxes.

Essentially, your net income is what you have to work with each month and year.

If you make $5,000 a month after taxes, then you know you have a maximum of $5,000 you can live on for all of your expenses and saving goals.

Hopefully, over time, this number will go up as you become more experienced and valuable to your clients or employer.

For me, I use income to judge how effectively I used my cash in a given period.

Tracking net income allows you to plan what to do with that income to best set yourself up for financial success

Gross Expenses

Next, we have gross expenses. Your total gross expenses is a very important financial statistic to calculate for yourself.

After income, calculating gross expenses – the total amount of money you spend during a month – will help you identify any weaknesses in your budget.

You can track your expenses however you find most effective. I split my expenses into some broad buckets, and then dive deeper to get a better understanding of where my cash is actually going each month.

  • Discretionary Spending
    • Food and Drink
    • Shopping
    • Recreation
    • Travel
    • Hair
    • Home Improvement
    • Cash Withdrawal
  • Utilities
    • Internet
    • Gas
    • Electric
    • Water
  • Mortgage/Rent
    • Principal on Mortgage
    • Interest on Mortgage
    • Home Insurance
    • Property Taxes
    • Private Mortgage Insurance
  • Auto
    • Gas
    • Auto Insurance
    • Maintenance
    • Auto Loan Principal and Interest
    • Parking
  • Other Insurance
    • Health Insurance
    • Dental Insurance
    • Umbrella Policy
    • Life Insurance
  • Other
    • ATM Fees
    • Other random charges and fees
  • Taxes
    • Federal
    • State
    • Social Security
    • Medicare

If I had kids, I can imagine having more line items for diapers, clothing, child care, sports, saving for college, etc.

Like I said, you can categorize your expenses anyway you’d like. Personal finance is personal! 🙂

For example, I lump food and drink together. Splitting them up makes sense as well, but I don’t drink as much anymore, and as a result, I simply have kept it as food and drink.

As part of your overall financial picture, tracking gross expenses can reveal areas of improvement (are you spending too much on a cable subscription when you rarely watch TV?).

Over time, you can make tweaks and grow to make sure you are on the path to financial success.

Savings Rate

Savings rate is a very important personal finance metric to track.

Once we have our income and expenses for a certain period, we can move on to a slightly more complicated metric: savings rate. No, it’s not too complicated, just some division added to the mix 🙂

A person’s savings rate is the percentage of income which a person saves in a given time period.

Simply put, it can be calculated as (net income – gross expenses) / net income.

Let’s say a person makes $5,000 in a month. They spend $2,500 of it and the rest is saved in their savings account. Then, their savings rate for the month is 50%, or ($5,000 – $2,500) / $5,000.

Now, it gets a little bit more complicated once you start to factor in contributions to investment accounts and principal payoff of debt.

For me, I don’t count these as expenses. With contributions to investment accounts, you aren’t giving your money to someone else, rather you are putting it somewhere else for your future self.

For paying down a debt, I do consider interest to be an expense.

At a minimum, people should aim to save at least 10% of their income. Personally, I’d suggest aiming for 25%+ to help you become wealthy more quickly.
calculating net worth

Net Worth

The final piece of financial information to track for your personal finances is your net worth.

What is your net worth?

It is your assets minus your liabilities.

What are assets?

Assets are things a person owns which have value. Typical assets include houses, cash, stocks, bonds, cars, precious metals (jewelry, etc.), currencies, businesses – and the list goes on and on.

Next, what are liabilities?

Liabilities are things a person owes, either to a bank, a financial institution, or another person or business. These include credit card balances, mortgages, auto loans, personal loans, liens – and the list here goes on and on as well.

To calculate your net worth, subtract your liabilities from your assets.

Knowing your net worth is crucial to tracking your finances. Focus on growing your net worth and you’ll be on your way to financial success.

“What gets measured, gets managed.” – Peter Drucker

4. Understand Your Spending Habits and Eliminate Any Spending Weaknesses

After you’ve started tracking your spending habits with step three, now you can look at your spending and identify any weaknesses.

One of my favorite quotes is “what gets measured, gets managed”.

After tracking your personal finances and figuring how much you spend on a monthly basis, you can then start to attack certain areas of your spending to save more money.

For example, if you see that you are spending a ton of money on food, maybe $1,000 a month, and you think this is too much, you can make note of this.

For me, I spend about $400 a month on food for myself. There are months were I spend $500, and when this happens, I know that the next month I need to reign in my spending.

For you, you should look about at all of your spending categories (housing, food, transportation, entertainment, etc.), and also look at the big picture to see if there’s anything you can change to reach your financial goals.
passive income

5. Implement, Track and Tweak Your Budget Over Time

No one can ever make a perfect plan – the world doesn’t work this way.

But with solid preparation, you can create a plan for your budget which will get you on the right path.

After a month, you can revisit your budget to see how you did. If you think there were certain categories which were too restrictive on your lifestyle, you can raise the spending limits on those categories.

For example, if you wanted to only spend $500 on food and drink, but ended up spending $600, then maybe you actually want your budget for food to be $600.

At the same time, you need to keep in mind your financial goals and to make sure that if you raise any spending limits, that you lower others (unless you are comfortable with saving less).

Over time, you can figure out a budget which makes most sense for you and get on the path to financial success!

Create a Budget Today to Save Money This Year

Taking control of your financial situation with a budget is the first step to financial success.

By following the steps above, you will know where your money is going each and every month, and better understand how to hit your financial goals.

Now, it’s time to take action and get your budget set for a successful financial year in 2021.

How awesome will it feel when you have a bigger emergency fund, you are able to worry less about work, and able to be more in the present?

These are the things I want for you and I hope you can achieve them in 2021.

Thanks for reading!

Readers: what’s your favorite budgeting method? Do you have any budgeting tips I missed here?

financial decision making

Making a major financial decision can be intimidating if you don’t have a lot of personal finance experience. In this article, you will learn about how you can make financial decisions with confidence.

making financial decisions

Throughout your adult life you will have to make major financial decisions that can potentially be life altering.  Some people don’t think their decisions through, while others are guilty of overthinking them.

Major financial decisions are often tied to our largest expenses. Choosing to rent vs. buy a home is a common one. Choosing the specific home is a subsequent major decision as well! Other examples of major financial decisions include (from largest to smallest):

  • Post-secondary education (for yourself or your children)
  • Choosing a vehicle
  • Purchasing furniture & large appliances
  • Purchasing computers, smartphones, & other technology

For the purposes of this article, we’ll say any purchase over $1,000 is a major financial decision. These aren’t decisions you make on a daily, weekly, or even monthly basis.

It may seem surprising, but the method for making major financial decisions is the same, whether it’s making the purchase of a home or a smartphone. It is also similar but more detailed than the process used for making better daily financial decisions.

Below, I have 5 tips you can implement to make better major financial decisions:

  1. Avoid Impulse Decisions at all Costs
  2. Don’t Listen to “Blanket” Advice
  3. Ask Yourself These Personal Questions
  4. Run The Numbers
  5. Don’t Get Cold Feet

Avoid Impulse Decisions at all Costs

Impulse buying is something nearly all of us do; this study says 84% of Americans have made an impulse purchase before.

While you may think of “impulse” shopping as buying a latte or a pair of jeans, it also occurs for major purchases. The same study said 20% of shoppers make an impulse purchase greater than $1,000!

You should “sleep on it” before making any such purchase if possible. The amount of time and effort to put depends on the scale of the decision being made. You should spend far more time researching a vehicle than researching a smartphone for example.

Also realize that buying the product as soon as you enter the store is NOT necessarily an impulse purchase. Ideally you’d be researching before going to the store, not after.

If I research the new iPhone and decide I want it, then I may spend no more than 10 minutes in the store. If I were to see the Samsung next to it and decide I like the Samsung better, then that would be an impulse purchase.

Sometimes unexpected things happen, whether it is a new deal for a different product, or a change in personal circumstances. Whatever the case may be, always sleep on your decision!

Don’t Listen to “Blanket” Financial Advice

Blanket advice is a term that describes a generic piece of advice that doesn’t consider your personal circumstances. It may be good advice for some or many, but bad for others. Given how personal finance is highly personal, you’ll need to filter through these pieces of blanket advice.

“Buying a home is always better than renting” is the most common piece of blanket advice in the personal finance world.

Since this is arguably the biggest financial decision of your life, it would be wise to not follow blanket advice here!

Ask Yourself These Personal Questions

There are some qualitative questions you should ponder before making your decision. Some of them may not be easy to answer; remember to be as honest with yourself as possible!

Do I need this or want this?

The question appears simple on the surface but it is actually subjective and complex. Needs and wants can overlap. You may need a car, but you want a Mercedes. You may need a college degree to be an accountant, but you want to go to an expensive, private, out-of-state college.

Timing also plays a factor here.

Getting a new phone can be a need if you have an iPhone 6, but a want if you have an iPhone 10.

Give it a few years and that want for a new phone will turn into a need.

Try to be as truthful with yourself as possible, and remember to prioritize needs over wants.

If this is a want, does it provide value to my life?

Just because something is a want doesn’t mean it gets ruled out!

The next step is to see if making this decision will bring value to your life, and seeing if that value is worth the cost.

This step separates the “I really want…” from the “I kind of want…”

If a major purchase or financial choice will improve your quality of life then it’s worth it, so long as you can afford it.

Can I afford this at its current cost?

This one is more objective than subjective. Running the numbers (discussed below) is the way to figure this out. You shouldn’t make a financial decision that will break your budget, even if it is a good deal or opportunity on its own.

Am I willing to consider any cheaper alternatives?

There is a cheaper alternative to virtually anything. The question is, what is the lowest-cost alternative that is still practical, and that you’re still willing to consider? These are questions only you can answer.

You might be in the market for a pre-owned vehicle in the $20,000 to $30,000 range. Would you consider a $10,000 used car? How about a $1,000 box on wheels? Odds are that you’ll get to a point where your standards will limit how low-cost you’re willing to go.

This is why you need to figure out what low-cost alternatives you’re going to consider, if any.

Housing is another area where there are many lower-cost alternatives.

House hacking is a great way to greatly reduce your housing costs IF you’re willing to consider it. I did house hacking for 4 years and had some great results!

Run The Numbers for Your Major Financial Decision

If you follow any one tip from this article, make it be this one! Doing the math for your own personal situation is a must for making major financial decisions.

If it’s a large purchase, you’ll need to evaluate what it’ll cost you. Remember that includes recurring costs (ie. maintenance costs) and not just the purchase price on the sticker.

If you are comparing different scenarios (most commonly renting vs. buying) then you’ll have to evaluate the costs of both to see which one is better in the long run. Again, don’t forget to include all costs and not just the purchase price!

It can be complex to perform these calculations though, especially if math isn’t your strong suit. Luckily there are plenty of awesome calculators online meaning you just need to gather the data and input.

Here are my favorite online calculators for different situations:

Don’t Get Cold Feet

At first glance, this may seem like it contradicts the first tip. However, this tip targets the other extreme! This is for the people who get cold feet from waiting too long.

“Through indecision opportunity is often lost” – Publilius Syrus

Not making a decision is effectively making a decision to do nothing. While you should definitely sleep on the decision of buying a used car, sleeping too many nights will result in the car likely being sold to someone else.

This is why doing the legwork beforehand is crucial; it gives you the opportunity to make a well-informed decision quickly when the time arises.

Make Smart Decisions During Major Financial Moments

Improving the way you make decisions can in fact improve your finances.  You employ many of the same strategies whether you are making daily financial decisions or making once-in-a-lifetime decisions.

It is important not to let impulses dictate your decisions here; but you also have to be careful to not get cold feet either.

Following the remainder of these tips will allow you to look at both the qualitative and quantitative sides to the decision, and be ready to make a well informed decision when the time comes!

Readers: what is the next major financial decision you foresee having to make?

win with money

Making smart financial decisions can be a tough task if you don’t have a lot of personal finance experience. In this article, you will learn tips to for you to make smart financial decisions with confidence on a daily basis.

make smart financial decisions

Every day you are forced to make decisions that impact your life. In fact, humans make an estimated 35,000 decisions daily!

Some of these decisions will impact your finances either directly or indirectly.

Direct effects are most often decisions on whether or not to purchase something.

Indirect effects can be a result of other things such as the opportunity cost of your decisions.

These types of effects can be seen when making major purchase decisions and making small daily decisions.

Since we acknowledge decision-making and finances are related, we should also realize that improving your decision-making might possibly benefit your finances as a result.

This article will talk about making better daily decisions not only for your finances, but also for your life as a whole.

The Power of Small, Consistent Actions

Since it is well known that focusing on the “Big Three” expenses is the best way to cut on spending, you may be thinking:

Why focus on small daily decisions?

The reason is simple. Firstly, the savings brought by some of these decisions can accumulate into large amounts. However, the most important reason is that small daily decisions are what form habits. They are a manifestation of your discipline, or a lack-of.

The process of self-improvement on a daily basis is equivalent to interest that compounds daily! It is more proof that compounding takes place in all aspects of life.

Financial decisions that occur daily are most often purchase decisions.

  • Do I buy lunch today, or do I cook the groceries I previously bought?
  • Should I check out the shoe store at the mall? Or just go and buy what I came here for?

The answers to these hypothetical questions can affect both your self-discipline and your wallet.

Most often, the daily financial decisions you make involve choosing to stick to your budget or not. If you frequently make purchases that have no place in your budget, or you overspend on things that are in your budget, you could be engaging in impulse buying.

The Power of Overcoming Impulse Buying

Impulse buying can be defined as: “the buying of retail merchandise prompted by a whim on seeing the product displayed.”

Impulse buying is a common occurrence, partly due to the free market we live in and the abundance of products you didn’t know you needed. In fact, a study by Invesp has found that 84% of American shoppers make impulse purchases!

These aren’t necessarily on small purchases either; the same study found over 50% of the same group has spent $100 or more on said impulse purchases.

The key trait of impulse buying is that it falls under unplanned decisions. At first glance, you might think it best to avoid saying “no” to all unplanned decisions, however it is not always that simple.

What if you forgot to add deodorant to your shopping list, but remember that you need it once you see it in store? Even though this was an unplanned decision, it’s still wise to say yes and purchase something you need.

Learning to filter the needs from your wants is all part of the improved decision making process you’ll use to avoid impulse buying.

5 Tips for Improving Your Daily Financial Decision Making

Improving your financial decision making might seem like a tough task, but with the right knowledge and steps, you can start making better financial decisions.

Below, I have 5 tips you can take and implement in your life to improve your daily decision making:

  • Always plan ahead
  • Minimize time spent on the smallest decisions
  • Avoid the source of tough decisions
  • Consider using cash envelopes
  • Find balance with your purchases and don’t sweat your mistakes

Let’s dive into each of these tips in more detail below.

1. Always plan ahead

The best way to improve your decision-making on a daily level is to have a plan.

This plan can be in the form of a monthly budget, shopping list, or meal prep plan.

Think about it: knowing what you’re having for lunch this week reduces the likelihood of you deciding to buy lunch!

Remember that a plan alone is not enough. Everyday, you’ll now have to make the decision of “do I stick to my plan?”

2. Minimize time spent on the smallest decisions

The size of the purchase should influence the time you spend debating it. After all, it shouldn’t take you 10 minutes to decide whether or not you want a $5 latte!

For most daily purchases, you shouldn’t need more than ten seconds to make a decision. The primary question to ask yourself is:

“Does this purchase bring value to me?”

There is also a secondary benefit to making your decisions quickly and concisely. The longer you think about it, the more likely you are to give in and try to justify the impulse buy in your head.

3. Avoid the source of tough decisions

This technique will help you stick to any plans you may have made in the first step. Avoiding online shopping is one common way people avoid difficult purchase decisions.

Marketing for e-commerce is cutting edge and astonishingly effective at getting repeat customers to make purchases. If you find yourself always tempted by this, then your best bet is to completely avoid visiting the website of your favorite retailers.

The same goes for shopping malls and large department stores. Try not to visit them spontaneously; I find it helpful to only go on shopping trips that are pre-planned.

4. Consider using cash envelopes

Finally, if you are really finding it hard to take control of your daily financial decisions, you may want to look into the cash envelope budget method. I actually covered this in depth as one of the 5 simple budgeting methods to make the most of your money.

I’ve personally never used this budgeting method, but it is one of the oldest forms of budgeting and is largely popular even in today’s digital age. It is truly a great strategy for those who struggle with sticking to a budget and avoiding impulse purchases.

The cash envelope budget method involves filling envelopes with a set amount of cash every month, with each envelope representing a spending category (groceries, transportation, entertainment, etc.)

The premise of this budgeting method is that it’s impossible to overspend with cash, since you cannot spend more than you have. Also, it’s been well documented that people tend to spend more using credit cards than cash. There’s something psychological about cash (maybe the fact that it’s tangible) that leads people to be more conservative with it.

5. Find Balance with Your Purchases and Don’t Sweat Mistakes

Decision making can be tough, and if you are worrying about past mistakes, then it can be even tougher.

I love playing sports, and in particular, one of my favorite sports is golf.

If I’m playing and hit a bad shot, sometimes it’s tough to forget about that bad shot, and I’ll end up overthinking my next shot – compounding the problem.

Instead, I try to take a deep breath and focus on making my next shot as good as it can be.

I can’t change the past, but can change my future.

For making smart financial decisions, a similar concept can be applied.

First, it’s okay to spend money on things which bring you joy. You can spend money and still meet your financial goals (living a fulfilling life is also important!!).

Second, sometimes impulse purchases are necessary because of stress or peer pressures. Realizing this, you can then find balance by cutting back elsewhere and recognizing that mistakes happen to everyone.

Balance is so important in life, and knowing when to be on, and when to relax is tough but a worthwhile endeavor to try to tackle.

Start Making Smarter Financial Decisions Today

Improving daily decision-making is a powerful way to help build positive habits and break down negatives ones. This goes not only for personal finance, but also for other aspects of life such as health and fitness.

Impulse buying is a very common daily occurrence, and one example of what improved decision-making can help to counter. Impulse decisions also affects making major purchases, which can add up over time.

Remember, there are many tools out there to improve your daily decision-making. Always make a plan before shopping. Tie your decision-making time to the size of the decision; don’t spend 10 minutes deciding on a coffee! Also, try to remove yourself from tempting situations such as browsing online stores.

With this article, I hope you can get onto your financial saving goals, save more money, and get on to living the life you want and deserve!

Thank you for reading 🙂

Are you looking to find some cheap and easy budget meal plans? In this post, you’ll find 21 delicious budget meals which you can cook in a short amount of time!

When you’re juggling a career, family, hobbies and a social life, it can be difficult getting a delicious meal on the table.

Sometimes it seems like there just isn’t enough time in the day to do everything we want – including making a healthy, from scratch dinner.

Fortunately, we’ve compiled a list of tasty, delicious meals that can go from kitchen to table in 45 minutes or less.

They’re as easy on your brain as they are on your wallet.

Here are 21 delicious, quick meal ideas for when you don’t have a lot of time (or cash).

I’ve split up the post into multiple sections – you can navigate to each one using the list below (or scroll):

Below, you can click on the recipe images to go to the website with each recipe.

Enjoy!

Budget Breakfast for Dinner Meal Ideas

Breakfast is a wonderfully delicious way to have dinner.

Not only is it generally inexpensive, it usually comes together quick and uses ingredients most people already have on hand, like milk, flour, eggs, and butter.

Whether you’re whipping up some fresh pancakes or feeding a crowd with a casserole, having breakfast for dinner is a great way to save time and money.

Add some fruit or eggs to make it a complete meal!

Here are three breakfast recipes to make when you’re low on time and money:

Photo by Jillian Guyette

 

Photo by Lauren Miyashiro

 

Photo by Park Feierbach

 

Can’t get enough of warm, fluffy pancakes?  Check out these 55+ pancake recipes for when you’re looking to change things up.

Budget Pasta Meal Recipes

Pasta is one of the world’s most perfect foods – it cooks quick, is versatile, and can be as healthy or indulgent as you want.

Nothing seems to satisfy like a big bowl of hot noodles smothered in rich sauce. Topped with a protein like grilled chicken or meatballs, and it makes a hearty meal.

Here are three pasta recipes to try when you’re short on time but want to pack in the flavor.

Photo by Parker Feierbach

 

Photo by Parker Feierbach

 

Photo by Beatriz de Costa

Love pasta but hate cooking?  Here are 20 mouth-watering pasta recipes that can be made in an Instant Pot.

Budget Sandwich Meal Recipes

Sandwiches can be the ultimate comfort food – they’re also super easy to prepare, making them a great lunch or dinner.

Here are three wonderful sandwich recipes for when you’re craving that gooey comfort-food goodness and don’t have a lot of time.

Photo by Parker Feierbach

 

Photo by Ethan Calabrese

 

Photo by Parker Feierbach

Need more sandwich ideas?  Here’s a list of 85+ sandwich recipes that are great for lunch or dinner!

Budget Tacos Meal Recipes

Tacos are one of America’s favorite foods, and for good reason – they’re tasty, cheap, and come together pretty quick.

Whether they’re filled with chicken, beef, pork or fish, tacos are a delicious weeknight meal when you need to get something on the table fast.

Here are three taco recipes that can go from stove to table in 35 minutes or less.

Photo by Park Feierbach

 

Photo by Erika Lapresto

 

Photo by Ethan Calabrese

Can’t get enough tacos?  Check out this list from Delish that has 50+ tacos recipes that are perfect for Taco Tuesday!

Budget Soup/Chili Meal Recipe Ideas

There’s nothing like warming up with a big bowl of soup or chili on a brisk Fall day.

It’s also the perfect dish for busy families, as all the ingredients can just be thrown into a pot and cooked while you’re at work or watching the kids, with minimal prep work.

These can all be made specifically in the slow cooker/crock pot for extra convenience. They also go great with sandwiches – another easy dinner idea!

Here are three soup and chili recipes to use when you’re short on time.

Photo by Parker Feierbach

 

Photo by Charlie Gillette

 

Photo by Ethan Calabrese

Want more soup?  Whether you need to cool down or warm up, Delish has you covered with over 100 soup recipes and ideas!

Budget Stir-Fry Meal Recipes

Stir fries are a great weeknight meal, as they don’t take long to whip up and are chock-full of veggies and protein.

The best part?  It takes less time to make than ordering take-out!

Here are three delicious stir fry meals to try when you’re craving Chinese take-out – without the waiting.

Photo by Laura Rege

 

Photo by Ethan Calabrese

 

Photo by Ethan Calabrese

 

Can’t get enough Chinese inspired dishes?  Check out this list of 70+ authentic Chinese food recipes from Delish.

Budget Wrap Meal Recipes

Wraps, while closely related to the taco, have their own wide variety of mouth-watering flavors to try.

Wraps are perfect for when you don’t have a lot of time, as they can be made in under 30 minutes.

They’re also perfectly portable for when you need to take a meal or snack on the go.

Photo by Hurry the Food Up

 

Photo by Parker Feierbach

 

Photo by Chef Savvy

Want more wrap recipes?  Check out this list of 22 sandwich wraps by Taste of Home!

Eat Great and Save Money at the Same Time!

Getting a delicious, healthy meal on the table doesn’t have to be complicated, time consuming or a chore.

Simply use one of these easy to make recipes, and you can have a tasty, hearty meal that’ll be on the table in less than 45 minutes!

Bon Appétit!

save more money

Improving your life and financial situation can happen instantly with a change in mindset. You can spend less money by prioritizing your spending on what matters, and looking to not spend money on things which don’t matter!

In this post, you’ll learn how shifting your mindset to cut out unnecessary expenses can be great for saving more money.

spend less money

There are many different ways to improve your financial situation. One way is to spend less on a monthly basis, and save the remaining amount.

While spending less, and saving more, sounds great in theory, in application, what exactly are you spending less on? What should you cut out of your usual spending? Should you make a budget?

Certain specific budgeting methods and savings ideas may work for you, these strategies do not talk about the mindset behind your spending.

Really, the simplest budgeting method is to look at your spending and see which expenses truly bring you enjoyment and happiness.

In this post, I want to share with you how you can prioritize your spending, bring joy to your life, and get a handle on your finances.

Spending Money on Things Which Bring You Joy

Let’s go back to the theory of improving your financial situation through spending less and saving more.

One of the most famous examples when talking about spending less is “The Latte Factor”, which was made popular in David Bach’s book, The Automatic Millionaire.

“The Latte Factor” are the little daily expenses which have the potential to add up over time.

If you spend $3.50 on a coffee and $1.50 on a bagel daily for breakfast at Starbucks, you are already at $5 for the day.

While $5 isn’t that much, if this is an everyday habit, this is $150 a month – just on breakfasts from Starbucks!

Maybe you don’t drink coffee, but have other small daily expenses which have the potential to add up over time. The idea of “The Latte Factor” still applies.

The point of “The Latte Factor” is that little expenses add up over time and can result in missed savings goals.

In the book, Bach recommends examining your expenses and thinking hard about what you need.

While I agree with the main point of “The Latte Factor”, I want to talk more in general about how I prioritize my spending to make sure I’m bringing fulfillment and joy to my life.

becoming financially successfulSpending Your Money on Your Passions

I have a few questions for you to think about.

These are more related to your life, than money, but will bring the answers you need to start getting better with your finances.

The questions are:

  • What are you passionate about?
  • What do you enjoy doing most?
  • Is there anything holding you back from doing these activities more?

The purpose behind these questions is to get you thinking about MATTERS to you.

For me, I’m passionate about spending time with my family, being healthy and active, and learning.

Since these are my passions, then I need to align my spending habits with these passions.

What does this look like in practice?

For my health, I’m not afraid to spend a little more money on healthy food and supplements. I am finding spending some money on a relatively nice bike, a rock climbing gym membership, and equipment which can help me reach my fitness goals.

For learning, I’m not afraid to invest in myself and buy a course, a book or seek help.

For spending time with my family, I’m fine spending money at a golf course my dad wants to play, or taking my family out to dinner once in a while.

These are things which matter to me and how I apply this thought.

Now, let’s change it up a little bit and talk about things which I don’t spend money on.

Spending Less on Things Which Don’t Matter to You

At the beginning of the previous section, I asked some questions which were looking to get to the core of what you enjoy doing with your time.

Now, let’s go to the other side.

  • What do you not like doing?
  • What are things you aren’t passionate about?
  • Do you find yourself stuck doing things you don’t enjoy?
  • With these things you don’t enjoy doing, are you spending money on them?
    • If so, why?

For example, I don’t watch TV. I realized after college that TV was a waste of my time and not worth my money.

With this, I don’t have Netflix, Hulu, HBO, or basic cable.

If I don’t enjoy watching TV, then it follows logically I shouldn’t pay for these services (and I don’t!).

Another thing I don’t spend a lot of money on is alcohol. While in my college days, I would drink a lot on the weekends, now, I’m fine going to the bar, having 1 beer, and then drinking water the rest of the night.

I’ve realized I can have a ton of fun with just 1 drink, and I can save $15-$25 by drinking water the rest of the night.

Along the same lines, I don’t really care that much about what car I drive. For me, when I bought a car, I had 2 wants: it’s not wimpy, and it gets good gas mileage.

I’m not a car person, so why should I spend a lot of money on a car!

These are seemingly obvious statements which make total sense after the fact, but when approaching these purchases for the first time, you could end up spending more than you actually want.

emergency fundIs it Possible to be Intentional with All Expenses?

If you are a personal finance optimization weirdo like me, your takeaway from this article might be to look at every expense and purchase you make and categorize it as good or bad.

Unfortunately, you will have expenses throughout the month which you can’t get out of – rent, insurance, taxes, utility payments, etc.

While these expenses you cannot completely remove, there are ways to reduce them to give you an opportunity to have more money for what you really want to do.

For example, with housing expenses, it’s possible you want to live downtown to be close to the action.

That’s great, but do you need the nicest apartment or condo, or could you go with a step down and save a few hundred dollars a month?

Alternatively, does it make sense to get a roommate, house hack, or live in the suburbs and commute in to downtown when activities are going on?

I don’t have the answers to these questions as I don’t know your situation.

However, hopefully this article has given you food for thought with regards to your spending.

I want you to be more mindful of how you are spending your money.

I want to make sure you are being intentional with your spending, and not wasteful with your money.

At the end of the day, you should be spending money on things that matter to you, and not spending money on things that don’t matter to you.

Prioritize Your Spending to Improve Your Life and Financial Situation

I’ve been talking about how I prioritize my spending to align with my passions.

Now, it’s your turn.

What are you spending your money on? Are you spending your money on things which don’t bring you joy? How can you allocate more money towards what matters to you?

Remember, with all things in life, there’s balance.

It’s important to remember there will be items which don’t bring joy which you will need to buy from time to time.

However, with the questions and tips I’ve discussed above, hopefully you will be inspired to examine your spending habits and align them with your passions.

For more money saving tips, check out these articles:

Thanks for reading!

Readers: how do you prioritize your spending? After reading this post, are you going to stop any expenses which aren’t bringing joy?

Erik

daily finance blogs

Creating a budget can be a great way for you to improve your financial situation. There are many different budgeting methods you can use, and in this post, you’ll learn about 5 simple budgeting methods.

simple budgeting methods

Budgeting is one of most common ways for a person to get on their way to personal finance success.

With budgeting, you can determine ahead of time what you will spend your money on, and what you will have left over each month.

Budgeting is to personal finance what dieting is to nutrition. Both require a self-discipline and accountability, and they can be challenging and seem discouraging at times.

However, with consistency and effort, budgeting works.

Budgeting and dieting also share another common trait: they run on deficits and surpluses.

If you want to gain weight, you need to consume more than you burn.

If you want to gain wealth, you need to have income higher than your expenses.

This deficit and surplus theory is the no-nonsense foundation of diets and budgeting methods alike.

In this post, you’ll learn about 5 simple budgeting methods, and how you can budget to make the most of your money.

First, let’s talk about your spending habits and think about what you need vs. what you want.

Applying Simplicity to Your Budget and Life

For those new to the site, you should know I’m a big fan of simple living. This mindset of simplicity applies to budgeting and spending as well.

First, before looking to start budgeting, it’s important to think about your financial goals and current lifestyle.

  • Are you looking to save up money for a new purchase?
  • Are you looking to get a house or new car?
  • What about take a vacation?
  • Do you want to start prioritizing health and wellness, and are fine with spending more on healthy food?

With these thoughts, then you can start to determine how much more you want to spend on other categories, and align your goals with your actions.

But first, what is a budget?

What is a Budget?

First, what is a budget?

A budget is just a plan for how you spend your money every month.

That’s it. Nothing fancy. It’s just you telling your money what to do.

But it can be a lot more than that if you’re constantly stressed over your finances. When you make a budget, it suddenly becomes a lot easier to:

  • See where your money is going
  • Figure out what you’re wasting money on
  • Create a plan for paying down debt
  • Build an emergency fund for rainy days
  • Save and invest for retirement or your kids’ college
  • Plan out your financial goals
  • Understanding your spending patterns and triggers
  • Stop freaking out over money

That last one is really important.

Money is not everything in life, but it is a tool you can use to create the life you want and deserve – without stress.

With these pre-budgeting thoughts and questions out of the way, let’s get on to the 5 simple budgeting methods for personal finance success.

5 Simple Budgeting Methods for Personal Finance Success

Budgeting doesn’t have to be hard or complex, and there are a number of different ways to make sure you are spending your money on what brings you joy.

Below are 5 simple budgeting methods for you to choose from:

  1. The 50 / 30 / 20 Budgeting Method
  2. The 80 / 20 Budgeting Method
  3. The 60% Solution Budgeting Method
  4. The Cash Envelope Budgeting Method
  5. No Budget

In the following sections, we’ll go into detail to learn more about these budgeting methods.

It may take some experimenting to find what works for you. After all, personal finance is personal!

budgeting financial1. The 50 / 30 / 20 Budgeting Method

Elizabeth Warren, a law professor and U.S. Senator, first referenced the 50 / 30 / 20 budgeting method in the book “All Your Worth: The Ultimate Lifetime Money Plan.”

Simply put, the 50 / 30 /20 budgeting method involves spending 50% of your take-home pay on needs, 30% on wants, and 20% on investing and/or debt repayment.

With the 50 / 30 / 20 budgeting method, you only have 3 line items to track every month – it cannot get much simpler than that!

What this method requires is for you to clearly define what is a need vs. what is a want in your life.

After defining your needs and wants, you just need to sort all your monthly expenses into a need or a want, and add up each category.

Then, you can review monthly to see if your spending percentages were roughly on par with the 50 / 30 / 20 guideline.

It should be mentioned that 50 / 30 /20 is just a starting point. These percentages are not practical for everyone.The nature of needs is that they are must-haves, irrespective of your income.

Say your household’s needs are $40,000 a year. If your take-home household income is $60,000, then your needs make up 66% of your income.

If that take-home income were $100,000, then needs would only make up 40% of your income!

So the percentages are variable depending on your situation.

Also, one other limitation is this method may be great for those with salaried jobs, but it’s not ideal for those with highly variable incomes.

Variable income is typical for self-employed people, commission-based jobs, and hourly jobs where the hours worked fluctuate week to week.

Luckily, there are a few other budgeting methods you can read about below.

saving money2. The 80 / 20 Budgeting Method

The 80/20 budgeting method is an even easier version of the 50/30/20 method.

If you don’t want to make the effort to discern between wants and needs, you can just lump them into one.

In this budgeting method, 80% goes to your wants and needs, and 20% goes to investing and/or debt repayment. That’s really all there is to it!

This budgeting method runs on a “pay yourself first” mentality. First, you should invest the 20% (or use it to pay off debt faster), and then you are free to spend the rest on your wants and needs.

This simple budgeting method is great for people who want to improve their sense of financial accountability.

Following this method will give you an impressive 20% savings rate on your income!

However, it should be noted that those who feel they are stuck living paycheck-to-paycheck would not benefit from this budget.

You’ll need to use a method that discerns between wants and needs, allowing you to see where costs can be trimmed.

3. The 60% Solution Budgeting Method

The next budgeting method is the 60% Solution.

The 60% Solution was first referenced in an article written by MSN Money editor-in-chief Richard Jenkins. This budget has five categories for your GROSS income (ie. pre-tax) outlined below:

  • 60% to “commited” expenses
  • 10% to retirement savings
  • 10% to long-term savings
  • 10% to short term savings
  • 10% for “fun money”

This budgeting method effectively suggests you can live off 60% of your gross income. According to the original article,

“I determined that we needed to keep our committed expenses at or below 60% of our gross income to come out ahead at the end of the month.

Committed expenses:

* Basic food and clothing needs.
* Essential household expenses.
* Insurance premiums.
* Charitable contributions.
* All of our bills — even such non-essentials as our satellite TV service.
* ALL of our taxes”

This budgeting method really simplifies expense tracking since all your “committed” costs are lumped into one category.

However, it carries the same challenges as the 50 / 30 /20 method since 60% may not work for your household.

I suggest starting with 60%, and changing it by +/- 5% depending on how easy or difficult it is.

For the other buckets, here are some examples of what they could involve:

  • The 10% retirement savings would be akin to an IRA or 401(k).
  • The long-term savings could be a goal such as saving up for a new vehicle or home down payment.
  • Short-term savings could be contributions to your emergency fund, or some purchase you are making in the next 12 months.
  • Fun money is self-explanatory!

This 5 category budgeting method is great for those who want to itemize their spending a little more, without evolving into a full-grown line item budget.

budgeting method4. The Cash Envelope Budgeting Method

The cash envelope budgeting method is the oldest form of budgeting out there.

In fact, the word budget originated from the Old French word for purse.

While the cash envelope method requires the most effort out of any method on this list, it is still relatively simple.

The cash envelope budgeting method requires you to go old school by using nothing but cash for all your purchases.

You need to create a few spending categories and make an envelope for each one. At the beginning of each month, you then put a predetermined amount of cash in it, which makes it impossible to overspend.

Here are some common categories:

  • Vehicle expenses
  • Groceries
  • Entertainment
  • Clothing
  • Childcare

This method is just great for people who struggle with impulse spending, or people who prefer visual organization.

As mentioned before, it is impossible to overspend if you follow the method correctly. This budgeting method helps build discipline for those who need it when it comes to discretionary spending.

There are some negatives with the cash envelope method however.

First off, not using any plastic means you may be forgoing credit card rewards (assuming you’d pay your balance in full and on time).

Secondly, carrying wads of cash in today’s day and age is slightly impractical and potentially unsafe.

Finally, the amount of effort required is far greater than other budgeting methods in terms of tracking expenses. There are no monthly statements prepared for you when using cash!

5. No Budget Method

The last budgeting method may shock you, but the best budget may be no budget at all! This may sound silly, but hear me out.

Of course, from a solely financial perspective, there is no valid reason not to have a budget.

However, personal finance is more than just numbers.

Psychology plays a huge role.

Many people dislike budgeting due to the scarcity mindset it may force on you. Granted, this mindset may be necessary if you’re paycheck-to-paycheck and trying to get out of that cycle.

But, is it really sustainable?

With the No Budget budgeting method, all you really need to keep an eye on is your savings rate. You can improve your savings rate greatly by reducing big expenses.

Of course, the higher savings rate, the better.

The concept of savings rate is actually incorporated in the other simple budgeting methods mentioned.

For example, if you have no budget and have a 20% savings rate, you’re actually inadvertently following the 80 / 20 budget.

This idea is great for those who aren’t in any deep financial trouble but still want to improve their financial situation.

Simply monitor your savings rate; as long as you are happy with the number, there is no reason to track more in-depth!

Which Budgeting Method is Right for You?

At this point, you are probably wondering, “which budgeting method is best and right for me?”

The best one is likely the one that resonated the most with you when reading the above.

Objectively speaking, some methods are more effective than others, but you should remember that this is not solely an objective matter.

The budgeting method has to be one that YOU think will work for yourself.

A budget is useless if you don’t think it’s a method you can reasonably follow.

If you can’t pick a budgeting method today, then to start improving your financial situation, I’d recommend to start tracking your expenses today. Don’t wait until the first of next month to act.

Look at your daily spending for a couple weeks, you can see where you’re at. With these measurements, you can figure out roughly how your budget is going to work starting next month.

Readers: have you tried any of these methods? Which have you found most effective for your household?

Budgeting Methods
get out of debt

Many personal finance bloggers provide net worth, income and expense, and goal updates each month for their financial situation. Some of these bloggers go in-depth into the details and are fully transparent, while others will tell you at a high level their net worth and how it changed during the month.

I love transparency, and I’m a big fan of blogging income and traffic tracking, as well as sharing in-depth personal finance updates.

I believe tracking your income and expense is incredibly important for financial success. At the end of each month, I go to my personal finance spreadsheet, download my transactions from Mint, categorize these transactions, and assess my spending habits.

In this post, I’m laying it all on the line: I’m going to give you an in-depth look at my spending habits for all of the years I have financial data for: 2013, 2014, 2016, 2017, and the first 3 months of 2018. This will give you an example of the spending habits of one male millennial.

What gets measured, gets managed; this is a philosophy of mine and I want to show you how I’ve done it in recent years to inspire you to become better financially.

My sincere hope is that you look at my transparency around my finances and look to take steps to make your financial situation better. I truly believe that everyone can get their financial situation in order and can be successful with money.

It doesn’t matter how much you make, it doesn’t matter how much you have currently. By taking steps each and every month to earn money, track what you’ve earned and spent, and adjusting to ensure you are spending money on things and experiences that make you happiest, and staying consistent, you will be on the road to wealth.

The Spending Habits of a Young Adult Male in the Midwest

25 year old frugal male spending habitsComparing and contrasting yourself to other people is a natural thing we all do.

I see your success and I want to know how you did it because I want success.

I’m sure you have similar thoughts about certain areas of life you want to achieve success in.

Let’s get this out of the way: I’m a 25-year-old millennial. I’m a guy and I live in a big city in the Midwest. I’d like to say I’m relatively frugal (which frugality itself has many flavors and definitions). 

I’m going to show you exactly what I’ve spent on myself the last few years, starting in 2013, when I was still in college, to the first 3 months of 2018.

This should be a fun experience for both of us!

Spending Categories I Track

One of the first steps to setting up a tracking system is to determine which spending categories you track, as well as determining how granular you want to go with your tracking.

Back in college, this is what my spreadsheet looked like:

college spreadsheet personal expense categories

I didn’t really know much about accounting, but realized that tracking and seeing my spending over time would be more beneficial than not tracking it.

Starting off, the 5 categories I tracked were: food, rent, school related, recreation, and other withdrawals.

In college, I didn’t have a car or car insurance, I was still luckily on my parents’ health insurance plan, and I didn’t have to worry about any loan payments.

As I mentioned above, when determining your categories for expense tracking, you can be as granular or as high level as you want. I think going into the weeds is awesome, but you might not care.

Again, for me, I had a category of food. Thinking back, food actually meant a combination of the following:

  • Grocery shopping
  • Going out to eat or to a fast food restaurant
  • Going to the bar
  • Getting a snack at the local convenience store
  • Buying alcohol at the liquor store

So really, I could’ve broken it out 5 ways, or at a minimum, made it food and drink, but I digress.

Again, it’s up to you to figure out what you like and how granular you’d like your financial tracking spreadsheet.

Creating a New Financial Spreadsheet

After getting a real job and finishing up all of my schooling back in 2015, I actually stopped tracking my finances.

What’s interesting about looking back on this, is that while my income increased from about $20,000 a year to $63,000+ a year, all of a sudden I thought I didn’t need to track my financial situation.

Luckily, I’m a relatively frugal person, and I didn’t let lifestyle inflation get to me.

In 2016, I realized I needed to get back on the tracking train and I’m glad I did it.

With a house, a car, car insurance, a real job, rental income coming from roommates, utilities to pay, and a whole bevy of other things to worry about, my financial spreadsheet needed a revamping from my college days.

Now, my categorization looks like this:

spending categories personal finance spreadsheet

While not super granular, I do split up utilities, my mortgage and the costs associated with that, any auto expenses, and even track the different taxes I pay each month.

The discretionary spending piece of my spreadsheet hasn’t changed too much: I went from Food, Recreation and Other Withdrawals to Food and Drink, Shopping, Recreation, Hair, Home Improvement, Travel, and Cash Withdrawals. (Hair got it own category because it’s not really shopping, and it didn’t fit in anywhere else 🙂 )

I’ve determined that this expense tracking categorization works for me.

Food and Drink lumps together eating out, grocery shopping, drinks with friends, and drinks from the store. I could break this out, but that’s more work than I want to do.

Recreation? That is golf, the gym, rock climbing, and other fun activities.

Shopping? That’s me going on Amazon to buy books, or spending money at Christmas for my family and friends.

Again, this is the categorization that works for me (remember, personal finance is personal!)

Breaking it Down By the Numbers

Okay Erik, stop messing around! Show me the numbers!

I’ll admit, I’ve been rambling a little bit.

It’s time to get naked and bare all!

(I’m working on being more visual and descriptive with my writing, but I probably didn’t need to write that…)

Spending Habits during My Master’s Program

Back in 2013, I was finishing up my undergraduate degree and starting my Master’s in Financial Math.

The summer of 2013, I started working as a bookkeeper making $12 an hour. To give you a little bit of information on the income side of things, in 2013, I made about $15,000, and after taxes, I was able to keep around $12,500.

Here are all of my expenses from 2013:

personal finance spending college student

I was bringing my lunch to work, going out once a week to the local college bar, and keeping my recreation expenses relatively low. For the first 8 months of 2013, I shared a 2 bedroom apartment with 2 other guys and was paying $522 a month in rent. For the last 4 months, we moved to a 3 bedroom duplex and our rent was $425. (The extra bit in the rent category is utilities I’m guessing).

Other withdrawals is a mystery here: I’m guessing this is shopping or something along those lines.

In 2014, it seems I became a little more comfortable with spending money, and to give you some perspective again, I was still working as a bookkeeper making about $20,000. I took home around $16,000 that year.

Back in 2014, I was networking more for work purposes (and for wife-y purposes, let’s be honest), and would go out to the bar most weekends with friends.

Here are all of my expenses from 2014:

expenses midwest 25 year old frugal

In September, I moved again and started renting for $500 a month. It seems I was starting to spend more on recreation and food, but overall, spending only increased about $1,000 year over year.

Spending Habits after Getting a Real Job

As I mentioned above, I didn’t track my expenses in 2015. I was paying down debt at a rapid pace, bought a house, and started to contribute to my 401(k).

Focusing on the income side of things took focus away from my expenses, and as I said, being relatively frugal, the expenses clearly didn’t cross my mind too much.

In 2016, I started tracking my finances again, and have been ever since. To provide perspective again, in 2016, I made over $70,000 at my day job, and also had roommates paying me rent.

Here are my expenses from 2016:

2016 expenses 25 year old

With a higher salary and passive income coming in from house hacking, I definitely loosened the belt a little bit on food spending.

In 2013, I was spending about $120 a month on food. Now, in 2016, I wasn’t packing my lunch and would eat out at work. I was now averaging about $450 a month on food and drink.

You can also see how expensive owning a house is. Luckily, as I mentioned above, my roommates were covering about 80% of the mortgage, so while these numbers look big, I was able to hack them to minimize my housing expenses 🙂

Still, between utilities and mortgage payments, I spent $26,000+ on housing in 2016! Crazy!

Interestingly enough, recreation spending was down from 2014. With a 9 to 5, there isn’t too much time to golf!

Starting a Personal Finance Blog and the Impact on Spending

At the end of 2016, I started The Mastermind Within.

Focusing on financial freedom, personal finance, and self-improvement, I started to analytically dive in to my numbers.

With this in mind, let’s look at how this impacted my spending habits.

Again, to provide perspective, 2017 was the year I made over $100,000 at age 25.

Here are my expenses from 2017:

2017 spending habits frugal midwest male

Comparing 2016 and 2017, my spending on Food and Drink decreased a little bit, and my spending on shopping, recreation, and travel increased.

At the beginning of 2017, I thought I wanted to get rid of PMI, but then changed my mind and have since looked to capitalize on asymmetric bets to build wealth. You can see two large principal payments in February and March that stopped shortly after.

Other than that, there’s nothing too notable about these expenses. Throughout this time, I was grinding on my blog and business, and didn’t have too much time to spend any money!

Starting a personal finance blog seems to have had a positive impact on my spending habits 🙂

My Spending Habits in 2018

In the beginning of 2018, I stayed pretty conservative with my spending. I was grinding and spending a lot of my time inside because it also was very cold!

Here are my expenses for the first 3 months of 2018:

2018 spending habits frugal male

My food expenses have decreased again as I’ve stopped going out during this super harsh winter!

Spending Habit Trends Over Time

Lifestyle inflation is something that gets the best of many people.

I’ve increased my income from $12,000 in 2013 to now over 6 figures.

Looking at my expenses, you have seen a slight uptick in food, travel, and recreation spending, but it’s not too much.

One thing that is definite, my housing expenses are much higher than college living, but I’ve also been very lucky to have been in a place to house hack and negate a good chunk of this expense.

In the next few years, it will be interesting to see how these trends continue.

If marriage and kids come into the picture, there will have to be some more lines added to the spreadsheet! 🙂

My Tips for Tracking Your Income and Expense for Financial Success

What gets measured, gets managed; this is one of my life philosophies.

For me personally, each month, I pull all of my transactions from my Mint account into my free Income Statement Spreadsheet. I categorize my transactions and see exactly where my spending and saving rate landed during the month, and look to see if there are any trends forming.

This is what I use, but you are your own person and might like a different method. I’m a big advocate of thinking for yourself and thinking critically, so stopping here would be short-sighted on my part.

There are a few other personal finance tools and applications I’ve used in the past which I believe deserve a look as well:

You’ll have to figure out what works best for your own personal financial tracking situation.

Concluding Thoughts on Examining the Spending Habits of a Young Adult Male

Wasn’t that fun?

I hope that providing this level of detail with my finances will inspire you to go back to your own personal finance spreadsheet and see how you can improve.

At the end of the day, here are my recommendations for you:

  • Track your income and expenses
  • Make sure you are spending money on things and experiences that make YOU HAPPY

While I’m relatively frugal with my spending, my main goal is to increase my income.

That being said, I can’t forget about the other side of the wealth equation. Spending 100% of what I make will not make me wealthy, and tracking finances is how I can ensure I will be successful.

Readers: how detailed is your spreadsheet? What categories do you keep track of? Do you like when others go into detail with their numbers? Was this post valuable to you?

Erik

make more money

How do banks work? What is the purpose of a bank? How do banks actually make money?

The world of banking can be confusing for many people, but it’s not too difficult to understand.

To understand the economy and markets, it’s important to understand the fundamentals of where money is created and stored.

Banks have a lot of control and power for the money supply in the world. Without banks, economic systems could not flourish, and investment couldn’t happen.

However, a lot of the banking actions and processes are not known.

Where does money come from? Where can I store my money? Is it safe? Can people create money? If so, what are the consequences of creating money from nothing?

In this post, I will be giving you a guide to banking for non-bankers. I will try to take complicated terms and concepts and share them ways you will be able to understand 🙂

The Origins of Banking

Way back, thousands of years ago, people wanted to go on pilgrimages and didn’t want to take all of their money with them. People wanted to store their money with someone they trusted while they were away.

The first banks were created to store peoples’ money and goods. Back then, a bank’s purpose was to be a safe storage place for an individual’s or businesses’ assets. For a small fee, the bank would hold a person’s gold or valuables for a later time. These first banks were a place to store your wealth.

As these financial institutions built up stores of wealth, they now had the potential to make loans and give credit to business owners and trustworthy individuals.

At first, credit was given for agriculture, but over time, credit would be extended for a number of reasons. Something to note, these loans were taken out of the existing pile of wealth, and without existing deposits, could not occur.

Different Types of Banks Today and their Functions

Over time, these simple banks which took in deposits and lent out what they could to trustworthy parties became much more complex in their nature.

While there are many sub-varieties of banks (which I’ll get into shortly), there are two main types of banks that dominate the financial ecosystem today: commercial banks and central banks.

  • Commercial banks are banks which work with consumers and/or businesses with deposits, loans, investments, and a variety of other financial products to suit the needs of those customers.
  • Central banks are institutions which oversee and manage interest rates, monetary policy, and money supply in a particular nation state.

Let’s go into more detail on these two types of banks.

Commercial Banks

Commercial (I’m referring to commercial here as a private bank – some might call this a variety of things: retail, investment, commercial, etc.) banks offer members of the general public financial products and services such as bank accounts, loans, credit cards and insurance.

These banks can be traditional, brick-and-mortar brands that customers can access in-person, online or through their mobile phones. Others only make their tools and accounts available online or through mobile apps.

As I mentioned above, there are a number of products and services these sorts of banks can provide:

  • Checking and Savings Accounts
  • Certificate of Deposits
  • Investment and Financial Planning Advice
  • Trust Services
  • Loans and Debt
    • Mortgages
    • Credit Cards
    • Auto Loans
    • Lines of Credit 
    • Small Business Loans and Credit Cards
    • Big Business Funding (Loans, Syndicated or Corporate Debt)
  • Payment and Money Transfer Processing

If you live in the United States, I can guarantee you have interacted with a bank like this kind.

Central Banks

overview of economic systemsOn the other hand, there is a type of bank which every day people don’t interact with.

Central banks manage the money supply in a single country or a series of nations. They supervise commercial banks, set interest rates and control the flow of currency.

In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and usually also prints the national currency, which usually serves as the state’s legal tender.

Central banks also act as a “lender of last resort” to the banking sector during times of financial crisis.

Most central banks usually also have supervisory and regulatory powers to ensure the solvency of member institutions, prevent bank runs, and prevent reckless or fraudulent behavior by member banks.

Central banks implement a government’s monetary policy goals, whether that involves combating deflation or keeping prices from fluctuating. If necessary, they can lend money in rough economic times to keep the monetary system from collapsing. In the United States, the Federal Reserve System is the central bank.

The central bank should take actions which are independent of the political environment, but some people believe that isn’t always the case. (potential rabbit hole here 🙂 )

Now that we know what kind of banks there are, let’s talk about how banks make money.

How Banks Make Money

capitalism and marxismThe business model of commercial and private banks is quite simple. There are a few different ways to generate income at a bank, but the most common way banks make money is through interest income.

Interest income is received from the borrowers who are paying back their loans. For example, if you have a mortgage or a student loan, each month, you end up paying a portion to the principal balance and a portion to interest.

The interest rate on loans will vary, and these interest rates are determined through analyzing the risk involved with these products.

For an example, mortgages are less risky than credit cards. With a mortgage, depending on the state, if you don’t pay your mortgage, the bank can foreclose and take control of your house. Also, people need places to live, which incentivizes those people to pay their mortgage.

Credit cards are not secured by any property, and so if a person stops paying, the bank doesn’t get anything in return. Since there is more risk here in credit cards, the interest rate will be much higher to compensate the bank for the risk taken on.

Many banks will target an interest differential of at least 3%, meaning they will look to earn interest at a rate 3% higher than the interest they are paying out in loans.

While it’s a little bit more complicated than this, this goal points to why in recent years, mortgage rates stayed around 3%, while your bank account interest rate was roughly 0%.

To emphasize, banks want you paying interest – it’s the main money maker for them.

Other Forms of Income for Banks

Banks make money in other forms as well depending on the products which are offered.

A few well known forms of income for banks would be the fees that go into opening accounts and loans for a person (origination fees). Another form of income is overdraft fees. To transfer money and process payments, there are usually fees associated here as well.

For commercial and investment banks, fees can be charged for helping businesses with their financing, payments, and investments.

Also, as I mentioned above, some banks offer financial services like financial planning, investment advice and wealth management.

Fractional-Reserve Banking Explained

Let’s dive into how banks work and operate now. To do so, we need to talk about fractional-reserve banking.

What is fractional-reserve banking?

Fractional-reserve banking is a practice where banks take in deposits and can make loans and investments using those deposits while only needing to hold a certain percentage of money in reserve. Since the majority of people don’t need all of their money at once, the bank doesn’t need to hold all of it and instead is able to use it for other uses.

In practice, this looks like the following: I have $1,000 and I want to deposit this at a certain bank. This bank takes my $1,000 and by law, is able to do what it wants with it. The bank will take my $1,000 and turn it into $10,000 and use the extra $9,000 to loan out or make investments.

In daily operations, banks in 2018 usually will have just 10% of all deposits in their cash reserves. This is where “bank runs” can be problematic because if just 10% of people need to take their cash out of the bank, then the bank is in trouble because this would represent nearly 100% of their cash reserves (again, it’s a little more complicated, but this is the general idea).

To complete this thought, these reserves are also in place for any losses the bank might experience.

In the next section we will talk about money creation and how my $1,000 is able to be turned into $10,000.

How Banks Create Money Out of Thin Air and What is Monetary Policy?

News flash: banks can create money out of thin air. If you knew this congrats, and if you didn’t, maybe it’s a shock to you.

However, most people don’t actually understand how this process works.

In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans.

Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

Let me explain through a simple example.

I’m looking to buy a home and I find one I like. I put an offer in on the house and it’s accepted for $250,000.

Now, I’m going to go to the bank for a loan of $250,000. The bank doesn’t have $250,000, but can create it. The bank tells me I’m credit worthy and decides to loan me $250,000.

Inside the bank, the internal treasury department will then go to the interbank lending market and borrow this amount. Central banks are a part of this interbank lending market and if there is a shortage between banks, will then provide the funds at given short term rates.

The short term rates which a bank is charged is the Fed Funds rate in the United States.

To further clarify this point, many people believe that banks are an intermediary between depositors and borrowers. Traditionally, this was probably the case, but in current times, this is not the case. Instead, as I just described, the banks can create money when they need to, and only need to hold a certain percentage of reserves to make sure they stay solvent and capitalized.

The process described above might happen thousands of times a day in the United states, and can be done without restriction in theory.

In practice though, risk needs to be considered, as well as a number of other factors like laws, shareholder expectations, and the overall economic situation (interest rates).

How do Bank Reserves Affect Money Creation?

As I described above, banks are required by law to hold reserves to ensure they have enough back up for losses or customers wanting their cash.

As a result, this money creation process can’t go on unbounded.

My example from above is slightly inaccurate because the bank doesn’t actually take my $1,000 and turn it into $10,000. Instead, it’s the opposite, they can now create the $10,000 and only need to have my $1,000 as a reserve.

In addition to this restriction, as a I mentioned, there are a number of factors which influence this money creation which I’ll talk about now: monetary policy.

How the Central Banks Set Monetary Policy and Influence Loan Growth

Central banks, as we discussed above, set monetary policy through setting short term interest rates in the interbank  lending market.

In March 2019, the overnight Federal Funds rate was roughly 2.50%.

Higher interest rates make it harder for borrowers (people and businesses) to qualify for loans, and in a similar fashion, lower interest rates make it easier for borrowers (people and businesses) to qualify for loans.

Connecting all of the dots in this post, let’s remember how banks make money through interest income. If a bank has to borrow money at 2.5%, and the goal interest rate differential is 3%, then on average, they will hope to set the average rate on their loan products at about 5.5%.

The central bank moves this overnight rate up and down depending on the economic outlook. Two metrics which the central bank mainly focuses on is unemployment rate and inflation, but will consider a number of other factors in the economy.

At this point, we’ve covered banking almost in its totality, but a question that I want to plant in your head for further consideration is, will creating money out of thin air catch up to us eventually?

Will Creating Money Out of Thin Air Catch Up Eventually?

In the beginning of a credit cycle, money is easy and lots of credit is extended to individuals and corporations. This debt helps to inspire people to consume, build, and create things for the future. However, sometimes, some of this will fail to produce long term growth, and defaults will occur.

Over time, the economy becomes stagnant, slow, and  over weight with debt payments and productively decreases.

Visually, credit cycles look like this:

credit cycle

Creating money out of thin air in an excessive fashion will lead these sorts of cycles with some great periods and some not so great periods.

One point I want to make here is to make sure to consider energy as well. Debt is a claim on future energy. If money is printed to the high heavens, then this is the same thing as saying that energy is infinite.

While in the past, humans have innovated and made due with a number of energy sources, assuming this can continue to happen without consequence is a little short sighted (in my non-expert opinion).

Expanding credit and debt would require ever increasing production of energy sources, which in a finite world, may or may not be the case.

Again, I’m going to go into this in more detail in a later post, but wanted to plant it here since it’s relevant to this discussion on banking.

How Banking Works is Not Too Confusing

Even though I’ve worked at a bank for a number of years and thought I knew how banks worked, as I continued to dig deeper, I found that I didn’t know everything I should have known about the banking and monetary system.

In this post, we learned about what banks are, what services banks provide, how banks make money, and how banks can create money.

Being someone who is concerned in finding and writing about the truth in the economic system, examining how monetary policy is set, how money is created, and looking at how money enters the system is a fundamental piece to understand.

I’m not an expert, but hope that I’ve provided a pretty good overview of how banking works.