As my personal finances have continued to grow, I've had to spend an increasing amount of time diving deep into how to properly manage everything. When I was messing around with a couple thousand in apps like Robinhood it didn't matter as much... but now with, well, a little bit more, I've been diving deeper and wanted to share what I'm up to. My talks and presentations have shifted from How To Start A Business to How To Design Your Life. Having a healthy relationship with money and your finances is a big part of lifestyle design.
My favorite things include spending time with my family & friends, traveling, and building my business. Each decision I've made is with these three core pillars in mind.
Quick example of how understanding your finances to a T can help:
(As of Nov 2019) average rent in Boston is $2685 for a one-bedroom and $3,300 for a two-bedroom. Most of my friends pay around $1200-1500 a month living with roommates, so I set $1200 as my benchmark. Since location & neighborhood are not in my priorities, I looked slightly farther outside the city. Turns out, you can find a 3 bedroom in Watertown, a 20-minute drive from the city, for $2200 a month + about $200 for utilities. $2400 / 3 = $800 a month. I also need a car for work and am constantly driving all around the northeast, so it's quick and easy to get into Boston, but also quick and easy to hop on the MassPike and get out. So that extra $400 a month I save? Well, that goes into my travel savings account. So $1200 every 3 months... means I get to leave Boston 4 times a year and use that $1200 on my Airbnb in a new country.
Step 1: Monthly Spending Budget
I can show you how to set up a system that takes 4-5 hours to build, which will allow you the peace of mind and freedom to only have to think about your personal finances for 2 minutes a month.
In short, on the 1st of the month, I make sure that I have $4,300 in my account. If so, I'll be fine. If more, I send it to savings. If less, I pull it from savings.
Here's how:
Money comes into my Checking account on the 1st and 15th. On the 3rd I pay rent, student loans, fund any investment accounts, and then have my savings auto-transfer to an Ally savings account (into different accounts named Down Payment, Travel, Fun Money, Emergency Funds, etc). Pretty much, on the 4th of the month, there's about $500 in my checking account (I leave $500 in as a buffer). Then on the 15th, I get paid again. I set my credit card bill to be due on the 18th (you can call and change your due date easily). On the 1st of the month again, I look at my account, and if there is more money than I need in there, I transfer it to one of my savings accounts.
The reason it works? Most people only think about how much money is coming in. I like to focus on where my money is going when I spend it. Every 3-4 months I look at my credit card statement and see if my spending has drastically changed. If not, I leave everything the same. It's not a budget. It's a dashboard about how you spend money. Your fixed costs won't really change. Your savings and investments won't really either. It's only your credit card bill that fluctuates a bit, so I like to build in 20% contingency just to be safe. And once you know your monthly spending, you can allocate properly for your monthly savings and investing, without fear. If you get a raise, great! Now you can actually choose where you want to put this money. A new gym membership? Increase your investments? Your call :)
Lastly, the biggest question I get is "but some months my spending is so random! I booked a flight to XYZ last month. THAT can't be budgeted for..." Well, yes it can. Your normal routine is your normal routine. Buying new AirPods or a flight is outside of that. If you want to buy something expensive that is not budgeted for, then do it. And once you do, transfer money from your Fun Money savings account to your checking account to cover the difference.
Interested? Watch my explainer video here Hanson's Monthly Spending Budget
Want more?
To learn more about how I use Credit Cards to fund all my travel, see my post here.
To manage your savings & investments in one place, check out Personal Capital.
To join the Facebook group I'm building, click here!
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Legal Disclaimer: I am not a financial advisor. The advice here given is not financial advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
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