Ramen and Fiji budget
Recession, recession, recession everyone is using the r-word lately, so there is no better time to check your finances. If you have read my previous articles, you have probably noticed I’ve put a decent amount of focus on budgeting and keeping close tabs on spending. Keeping an eye on spending has been particularly painful as inflation has eaten into more and more of your budget. Let’s start with a quick review of my preferred budgeting strategy, the 50/30/20 rule.
- 50% Needs (Housing, groceries, insurance, transportation)
- 30% Wants (Hobbies, vacations, dining out, drugs and alcohol)
- 20% Savings (401k, CDS, Bonds, Stocks, savings account) and debt payment (credit cards, car loans)
I mentioned the 50/30/20 rules because during hard times when your check is already stressed, you may need to draw down from your savings, but that should be a last resort. If you have been budgeting, you should be able to see your monthly income and input your pay into that formula. That lets you know the max you can cut from wants and, if needed, withdraw from your savings and still pay all your needs. This is called a shoestring budget, but I like to call it the Ramen and Fiji budget because I try to keep some percentage of my wants, even if it is just something small. Remember needs should only have been 50% of your pay, to begin with, if it was higher, you may have to make deeper cuts.
It is ok to draw from your savings that’s what it is there for but try not to tap it out if you can, and do your best not to overleverage yourself. Taking out more credit card debt and loans in a downturn is easy to do but harder to get out. But just like drawing down your savings, it might be unavoidable if it is just working to return to the 50/30/20 when you can and keep track of ways to cut anything you can to get your finances back in shape. You will make it through this check back for more advice and reach out if needed.
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