Mind Your Money: Financial Wellness for Millennial women
Four Financial Models I Use To Set Spending And Salary Targets
As a modern millennial woman, managing money effectively is key to achieving both personal and professional goals. With the New Year upon us, it's the perfect time to explore various financial models to find one that aligns with your lifestyle and objectives. I am not a financial expert, my zone of genius is in the mental-emotional-energetic realm, but I believe that we can’t separate our everyday habits and actions from our spiritual growth.
This blog post is simply pointing you towards financial models I have collected and used as templates to tweak my own personal finances.
I find having clear targets, limits, and ranges helps me become the most effective when it comes to anything that has to do with numbers. I need to see the data. And if you’re like me and just need some boundaries to work with that you can then make your own, this post is for you.
Here are the four financial models I’ve been using as set points to adjust and create my income goals and spending targets. Like everything personal growth, we often have to just start, watch objectively, and then adjust and refine until we find our personal sweet spot. Here’s what I’ve got for you:
1. Ramit Sethi's Spending Categories
Ramit Sethi, author of “I Will Teach You To Be Rich,” suggests allocating your income into specific categories: 50-60% to fixed costs, 10% to investments, 5-10% to savings goals, and 20-35% for guilt-free spending.
Flexibility in Spending: Allows for a significant portion of income to be spent guilt-free, promoting a balance between saving and enjoying your earnings. If I’m being honest, I’m a fan of his model because he really encourages spending on the things that really light you up and make you happy while examining the areas you overspend that don’t add value to your life. For example, if luxury travel is actually important to you—go for it, but know what things equally aren’t important.
Clear Investment Focus: The emphasis on investing helps in building wealth over the long term. If I’ve learned anything from him, it’s start investing today. Even if you don’t think you have anything to invest. He has great blog posts on how to invest in low risk simple ways that don’t require you to learn about stocks and bonds.
Drawbacks: This model requires discipline, particularly in maintaining the balance between different categories. If you have a fixed income this is easy to work with automated transactions, but for those with a more variable income it can require more work to allocate money properly.
2. Richard Jenkins' 60 Percent Solution (Adjusted)
Richard Jenkins advocates for allocating 60% of income to fixed expenses, with the remaining divided equally: 10% to retirement, 10% to long-term savings, 10% to short-term savings, and 10% for fun.
Simplified Budgeting: Having a clear 60% cap on fixed expenses and simplified percentages across the other categories simplifies budgeting.
Balanced Saving Approach: Allocates evenly to different saving goals, ensuring a well-rounded financial plan. If you’re a natural planner and saver, like to plan what you’re saving for in advance, and budget for big expenses this plan may be more beneficial to you than a model with more variable categories.
Drawbacks: Limited Flexibility with equal distribution in savings and fun might not align with everyone’s personal financial goals or spending styles. This spending model won’t work well for luxury or impulse buyers. Read more about the Eight Buyer Types Here.
3. The 50/20/30 Rule
This rule suggests allocating 50% of income to necessities, 20% to savings and debt repayment, and 30% to wants.
Ease of Use: Simple and easy for beginners to implement and tailored towards those working on paying down debt as a goal.
Balances Necessities and Wants: Ensures a healthy balance between essentials and personal enjoyment.
Drawbacks: The one-size-fits-all approach may not fit all financial situations, especially for those with higher debts or costs of living.
4. The 70/20/10 Rule
Under this model, 70% of income is allocated to monthly fixed and variable expenses, 20% to savings, and 10% to debt or investments.
High Expense Allocation: Suitable for those with higher living costs.
Focus on Debt Repayment: Good for individuals focused on paying off debts quickly.
Drawbacks: Low savings percentage doesn’t work to build long-term financial stability through both cash-in-hand savings and investments.
Choosing the right financial model is a personal decision that depends on your unique circumstances, goals, and spending habits. Ideally you want to pick a model that aligns with your current spending habits or slightly adjusts them, making incremental habit change sustainable. As you work on one model, you might find yourself wanting to adjust it with your goals or move into another model.
Whether you're looking to save aggressively for the future or find a balance between enjoying your earnings now and securing financial stability, there’s a model to suit your needs. Consider your lifestyle, income, and aspirations as you plan your finances for 2024, and remember, financial planning is about finding what works best for you.
Reminder: I am not a financial professional or money expert. I am a strategic and analytical thinker who loves data and dives into topics I'm curious about (Reflector Life). I have learned these things from self-study while working on my finances, and this info should not be used in place of seeking guidance from a legitimate financial advisor.
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