How do I f%*king make a budget?!

As I’ve said before, the first step to getting your financial life together is admitting you have a problem. And I know what you’re thinking. You’re thinking: Okay Nicole, I’ve admitted it, I have a problem, I’m shouting it from the rooftops, but what happens now?

Well, now we take the next step on the road to Rich Bitch-dom. And what do you need on the open road? A map. A plan. So, let’s get started. We’re going to build you a map.

It’s time to make your (drumroll, please), spending plan. What’s a spending plan? Between you and me; a spending plan is a budget with a glow-up. I’ve rebranded “budget” to “spending plan” because we’ve all learned to cower at the word budget. Plus, conventional wisdom has dictated that a “budget” should be created around where you need to stop spending money. That’s bogus! A budget should encapsulate where you can spend money… hence the “spending plan” rebrand-glow-up.

And because I promised to demystify this world of money for you, I made putting together a spending plan simple. It’s just 3 Es. Here’s how I break it down.

Of what you’re spending…

• 70% should be on Essentials… so that’s the stuff you probably have to pay every month like rent or mortgage, utilities, food, transportation, bills, insurances, loan payments. The basics.

• 15% should be on Endgame… so that’s things for your future like taking that great trip, or having a sweet retirement, or buying a home, or investment accounts, or supporting a child or parent.

• 15% should be on Extras… the fun stuff, the eating out, or ordering in, getting the pricier shoe because it’s pretty and you want it.

Shit’s about to get real. Now, we’re going to take a hard look at your spending habits and see if you have been following the three Es. And if not, see where we may need to tweak your spending habits to fit into a safer spending plan.

So let's get into it. First, take out a sheet of paper or open up a new Google Doc and write down how much you make in a month. And when I say “make,” I mean, how much money is actually going into your bank account after taxes, health insurance, and all that jazz.

Now make three columns, one for each of those three Es: a column for essentials, a column for endgame and a column for extras. Then, take everything you’re spending in a month and put it in the correct column. Your rent payment? Throw that into the essentials column. Your weekly mani-pedi? Liiiikely going to be going in that “extras” column.

To see how much you’re spending in a month, the easiest place to start is to go through your bank statements. And I highhhhly recommend doing this. So many people just write down what they remember spending off the top of their heads, but I guarantee you, if you don’t go through your statement you will miss things (Car insurance? Amazon Prime? Laundry? That thing you signed up for with a 30-day-free-trial and never cancelled?).

Here’s a bare-bones example (you probably will have more items than this!):

You guessed it… it’s math time. **Cue Rocky Theme Song**

Once you’ve gone through your statements, and logged each expenditure within one of the three spending categories, it’s time to add up each column. We’re almost there!

Next, let’s add up the totals of the three categories just to make sure we’re not spending more than we’re making…

Phew! We’re allocating $3,000/month to our 3 E’s and we’re making $3,000/month. So far, so good.

Next, we want to find out how each of these three categories is contributing toward the total amount you’re spending each month.

To do this, we take the total for one of these three categories, and divide by the total amount of money you make in a month. Then multiply that number by 100 and… tada! You know what percent of your income is going to that category.

To bring the point home, here’s the same information, but pretty:

Let’s start with the Essentials category:

When we plug the Essentials information into our trusty formula, we find that 70% of what we’re spending is going to Essentials; which is exactly what we wanted. Yay!

Now, let’s take a look at extras. This category tends to give people more trouble...

Well, shit. We were aiming for 15% for Extras and we’re clocking in at 23%, so, quite a bit higher. Let’s look at Endgame...

Shit again. We were going for 15% for Endgame, and we’re quite a bit lower.

If you did the math and you’re not getting 70% for essentials, 15% for endgame and 15% for extras… go back and see why that might be. There may be a perfectly good reason. Maybe your transportation costs are $0 right now because you’re not taking the Subway to work, so you’re adding a little bit more to your retirement fund… or spending a little more money on ordering in because that’s keeping you sane right now.

But (and this is really important), deviating from the three Es only works if there’s give and take. If you’re spending a little more money on ordering in but you’re not spending a little less money somewhere else… you’re going to find that you're spending more than you’re making, and well, that’s a huge no-no. So take some time with this. See where you may want to trim some financial fat and where you may want your wallet to put on some weight.

If someone came to me with the example I just laid out above, I’d tell them to trim some fat in the Extras category and beef up their Endgame. In that example, a big part of the Endgame was saving for a roof. If you assume that a new roof is going to cost around $10,000 and you’re only saving $100/month for the renovation, it will take you 100 months to get a new roof. Can you really wait that long? When do you want your shiny, new roof?

Huh, did I just ask you your target timing, kind of like… a goal? Yes, here is the big reveal: your budget is linked directly to and intertwined with your goals. Check out my second Bulletin article Get it Together and Get it All for a guide on how to put a price tag on your dreams.

That's all the time we have for today! I’ll see you soon for your next Money Minute.

xo,

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