Latinx Wealth Builders: Budgeting Like A Boss
Tanya Menendez is the Co-founder and CEO of Snowball, an online platform that helps you tackle debt and investing through free personalized recommendations and affordable coaching. Menendez co-founded Maker's Row, an online marketplace that helps democratize American manufacturing for small businesses. Menendez has been included in Forbes' 30 Under 30 List and named one of People en Español's Most Powerful Latinas. You can follow Tanya @makertanya and Snowball @asksnowball.
Budgeting has a bad reputation. It's seen as a chore and as something that retrains you. However, through my building of two profitable businesses, I've seen that budgeting is actually something that has a lot of power that can be used for achieving your goals. You can use your personal budgets in the exact same way.
As I wrote about in this blog post, effective budgeting “allowed me to leave a job that wasn't right for me, a boyfriend that wasn't a good fit and gave me the ability to start another company with a mission that is impactful and personal.” It is true! If you haven't been budgeting, you should give it a chance.
What exactly is a budget? A budget is simply setting up some rules for yourself to make the most of your money. You want to figure out how to balance what you need and what you want right now, while saving for future long-term goals (maybe that means becoming a millionaire).
I created a simple budget template over at Snowball (you can find it once you login to a free account).
Here is how to create your budget in 5 steps.
1) Income – Know exactly how much money you are bringing in each month. You should know this number off the top of your head. For your regular paycheck, make sure you also set aside the amount that is deducted for 401K, savings, or health/life insurance so you can account for that in your budget. If you are making other types of income that hasn't been taxed yet (e.g. if you are a 1099 contractor), make sure you set aside the amount you will need to pay for taxes or other business expenses.
2) Expenses – Know exactly where your money is going each month. Start off with knowing how much you spend each month. If you haven't been tracking this, it can be scary to face the truth, but I promise you, it's better to know. Take a look at all the expenses you incurred over the past 3 months and also any expenses that are incurred annually. Put these of expenses into categories (e.g., food, savings, entertainment, etc.). This will be a good basis to try to figure out what you should be budgeting for and around how much.
3) Wants (20%) – Keep “wants” at about 20-30% of your budget. Wants should be things that are not essential for you to live and work, such as eating out, travel and entertainment. Make sure you budget and prioritize the “wants” that truly bring you joy. For some people, that might be traveling once a year to a new city, so make sure you make room for that in your budget.
4) Needs (50%) – Keep “needs” at about 50% of your budget. Needs should be the absolute costs for what you need to live month to month. This can include groceries, utilities, transportation, insurance, housing, childcare, and minimum debt payments. If your needs are greater than 50% already, you will need to either dip into the wants category or try to find ways to keep your expenses lower (e.g., lowering utilities, refinancing debt, etc.).
5) Investing, Saving, Debt (30%) – Lastly, try to allocate 20–30% of your budget toward saving, investing or paying off debt. The goal here is to make sure you've got an emergency fund first, next pay off high interest debt, and once you've done those two, begin saving and investing.
No one said budgeting was easy, so seek help and life-hacks: Automate as much as possible and find a buddy. You should automate allocating the money toward specific goals (e.g., savings, investments, bills), and reduce the urge to skimp on savings. That means, open up a separate bank account and set up an automatic transfer for each month. Do it now! It will be the easiest way to begin. And it's always helpful to find an accountability buddy for that extra nudge to stay on track, check out the private group for Snowball Wealth on Facebook.