Or, How you can allocate your income for success- even if you hate to budget AND you do not have money to allocate:
As promised, in continuation of yesterday’s post on allocations, today we will discuss what to do if you do not have 45-50% of your after-tax income to allocate to the specific sub accounts (Investing, Saving, Play, Education, and Giving).
1. Take another look at where you are spending your money.
There is a good chance you already are spending money in these areas, you just do not label it as such.
That morning coffee and donut? Play
That workshop? Education
Student loan payment? Education
401(K) contribution? Investing
The “little extra” you added to the tip? GivingEating out? Play
That new book? Education or Play (depending on what it is about)
2. Move those expenses around. See where it stands now.
Chances are your accounts will not be equally allocated. Most likely you will have more going to play than education.
3. Now that you know where you are, see what you have to do to get where you want to be.
Look at where you are spending your money. Does that purchase bring you joy? Or is it more of a habit?
You may even find things you have been purchasing on a recurring basis that you forgot were paying for. Cancel the payments you do not really need. Get rid of things that do not bring you joy or closer to your goals.
This is not about deprivation, but freedom.
4. Still not where you want to be?
Now it is time for the difficult choices.
If your expenses in one area exceed 10% of your after-tax income and you do not have extra to allocate towards it and you really want to find financial freedom, it is time to cut it out.
Remember two things- it is not forever and you have 10% to play with however you want.
5. Still not there?
Okay, so it may be that after you pay your rent or mortgage, insurance, utilities, groceries, etc, AND after you allocate whatever expenses you can to the sub accounts you simply do not have enough to allocate 10% towards each of the subaccounts.
This is okay.
What you will have to do is allocate an equal amount of whatever is available to each sub account. This may mean that each one only receives 5%, 1% or maybe even only $1 per paycheck.
The important thing is that you get started on each of them. You do not want to sacrifice your future or your education so you can splurge on Play items now.
6. Revisit on a regular basis.
This could be monthly, quarterly, or annually, but take a look every so often to make sure everything is in line. It is also encouraging to see how far you have come.
Please let me know if you have any questions. And, if you are really stuck and want to chat, let’s get together for a free First Steps Financial Strategy zoom call where we can figure out together how to overcome your roadblock on the path to financial success.