Embracing Lifestyle Changes Over Strict Budgeting: A Sustainable Approach to Personal Savings

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If you’re looking to lose weight, instead of a diet, the focus should be on making lifestyle changes. Meaning that if you’re going to force yourself to eat certain foods, it won’t be sustainable, and you’ll be right back to where you started if it isn’t a change that will naturally fit within your lifestyle. 

The same philosophy should be applied when working towards saving for the future. The more the budget fits with your lifestyle, the more likely you are to follow it.

The 50/30/20 Budget Rule

One of the most common budgeting tactics is the 50/30/20 rule. It will assist you in living within your means and staying out of debt. Use the percentages below as a rough guide for how the percentages should play out:

  • 50% For necessary expenses

    • 20-25% Housing

    • 10-15% Food

    • 5-10% Utilities

    • 5-10% Transportation

    • 5-10% Healthcare

  • 30% For lifestyle expenses

    • 5-10% Recreation/Entertainment

    • 5-10% Consumer goods

    • 5% Miscellaneous

  • 20% For Savings

Keep in mind that these percentages should be based on your take-home pay (after tax). Additionally, your budget for savings should be prioritized after necessary expenses but before lifestyle.

Avoid a Mindset of Constriction

Remember how I mentioned earlier that sustainability was the key to a successful "diet" strategy? The 50/30/20 budget plan includes discretionary expenses to enable you to enjoy occasional treats that make life worth living. Being too strict with yourself can be counterproductive, as it may lead to excessive purchases driven solely by emotion due to the stress of trying to stick to the budget.

But Be Prepared to Have to Make Hard Decisions When Setting Up Your Budget

While it's important to include discretionary spending in your budget, keep in mind that it should be the last category to consider. The preceding categories may exceed the recommended ratios meaning you may not have the full 30% to spend here. For example, if you live in a high-cost-of-living area, your necessary expenses may exceed  50%. This may sound in opposition to the enjoyment mentioned previously, but the difficult (and oftentimes stressful) decisions being made here are when you sit down to plan out your budget in advance of expenses.  This will lead to the ability to avoid making stressful decisions in the moment.

Flexibility is Key

It’s perfectly acceptable to get very, very intentional for short periods to achieve goals. Want to buy a new car and pay cash? Go on a lavish trip? Pay off your mortgage 5 years early? These are rather lofty examples but regardless, if the goal you set is what will bring you joy, then by all means get after it. Keep in mind, if your budget is too tight you’ll have trouble sticking to it for extended periods and the extra savings amount will have to come from your lifestyle expenses.

Reflection and Adaptation

When you’re drawing up your first budget, reference historical data and avoid guestimating amounts. Ideally, you want to review six to twelve months of financial statements to ensure you’re able to spot trends in expenses. The great thing about this exercise is you’ll probably find expenses that you either weren’t aware you were still paying or are more than what you thought it costs.

Pay Yourself First

I alluded to this earlier but saving for your future should always precede your current lifestyle. You should establish a savings account that is linked to your employer for direct deposit. From that account, you can then transfer the EXACT dollar amount you budgeted for to your checking account where all outgoing payments will be transacted.

Ideally, there will be excess funds left in the savings account at the end of every month (and as you improve, it’ll be more than 20% of your post-tax income) This is the simplest, and most cost-effective way to ensure that you pay yourself first.

Review and Improve

The more frequently you can track and review your progress, the less likely you are to deviate from the plan. A bare minimum should be a monthly review but for the first few months, daily reviews would be best.

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.