This week, we're sharing episodes of Money Rehab that will help you financially win in 2025. Today, you'll hear Nicole's best episode on making a budget. In this episode, Nicole covers exactly how much should go toward your essential spending, what the heck you have to put toward retirement, and how much you get to spend on the fun stuff: vacations and bottomless-mimosa brunches.
What are the essentials of a budget?
I am not going to tell you not to order in. I'm not going to tell you not to buy a latte. This is the stuff that keeps us going. It keeps you sane likely or sane adjacent right now. But this is really important because deviating from the three E's only works if there's a give and take here. So there has to be this rebalancing.
Every year, if you're spending a little bit more money on ordering in, but you're not spending less somewhere else, then you're going to find that you're spending more than you're making. And that is a big, big no-no because that means we're in a huge personal budget deficit. So take some time with this. See where you want to trim some financial fat.
See where you might want to put some weight in your wallet. And try to make it balance out because this ties into our final step. And your spending plan is directly linked and intertwined with your goals. It all comes back to this very first step of our goals. And that's maybe where the eraser, if you have one, comes in. So riddle me this.
Does your budget or your spending plan put you on track to actually achieve the goals that you first wrote out? Now, the first time I wrote down my goals, I thought they were. For year one, it was start a production company, contribute $15,000 annually to a retirement fund, and get drinks with girlfriends at least once a week. So I made my spending plan, and... It didn't add up.
There was no way I could swing a retirement contribution and put up Scratch to get my production company going. And then it turned out that starting a company was actually a lot of work on top of my full-time job, thank you very much, which frankly made it tough for me to find time, let alone the energy to have drinks or dinner with girlfriends. So I get it. Facing the music is tough.
It's eye-opening. It's kind of a slap in the face sometimes. You may realize that you're going to have to make more compromises that you didn't see coming. That's what adulting is about. You may have to add in some more time to achieve your goals. You may have to rejigger that timeline. But I promise you this. Making realistic goals sets you up to achieve them.
You'll be so proud and happy when you did. It's like you never regret a workout. You never regret making and sticking to a spending plan. I pinky swear. Well, on the other hand, super ambitious goals that aren't realistic set you up for disappointment. On Wall Street and in life, it's better to beat low expectations. So set yourself up to exceed your expectations and not be disappointed by them.
And when you miss a milestone, you feel defeated. You start making bad money decisions. You scrap the whole 10-year plan. Trust me, I've seen it. It's happened before. When you diverge from your diet, the same thing happens. You're like, I already messed this up. Might as well eat the entire cake. Don't do that for your money. It's not the same. So when I had to face the music, here's what I did.
I went back to my goals. I went back to my spending plan. And I made some more edits. I scraped together $1,000 a month for retirement, which is way less than my goal, but it was all I could handle. Then I scaled back drinks to every other week. Not exactly the goal I had written down, but I could still see my girlfriends and maintain important relationships in my life and also some of my sanity.
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