For years I spent money, and did not pay attention to where it was going. How many records did I buy? How much did I spend on alcohol this month? A few years ago, when I was trying to figure out my finances, I told myself, “I need to make a budget so I can see where my money is going”. I began making monthly spreadsheets and listing all the purchases I made for that month. It's a tedious process, but one I deem necessary.
A good rule of thumb for budgeting is the 50/30/20 rule, popularized by Senator Elizabeth Warren.
50% - Needs: such as housing, groceries, car payments
30% - Wants: such as clothes, restaurants, shows
20% - Savings: such as investments or savings account
So, let’s say you make $4,000 each month. Following this rule:
$2K should go towards your needs
$1,200 should go towards your wants
$800 should go towards your savings
It’s a good rule, but by no means the only method of managing your money. The point of budgeting is to become aware of any overspending or under-saving. How do you know if you are under-saving? According to retirement-plan provider Fidelity Investments, you should have saved 1x (times) your salary at age 30, 2x your salary at age 35, 3x your salary at age 40, etc… So if you make $50,000 a year, then you should have saved $50,000 by your 30th birthday. These savings can include your pension, Roth IRA, 401k, etc., again, this is only a suggestion.
My final expenses for 2021 were pretty similar to those of 2020. My grocery, restaurant, and entertainment purchases all fluctuated from month to month. I do not have a hard limit for any particular category. Below is a breakdown of a few categories in my 2021 budget as well as numbers for 2020.
50% - NEEDS
Rent -
2021: $16,000
2020: $14,296
We live in downtown Baton Rouge so our rent is a bit pricey. It does come with a gym membership, DirecTV, and free parking, which is nice. We are willing to pay more in rent in order to be closer to work which saves on commuting. This way, we also save by not having a second car, and all the expenses that come with vehicle ownership. I hate commuting, and I never want to have a long commute ever again. It is a waste of time and makes you miserable.
Utilities -
2021: $685
2020: $636
Our one-bedroom apartment is a total of 724 square feet… it is not a big place. Our monthly bill for utilities is around $50. We do not pay for water, garbage, or the internet.
Groceries -
2021: $6,186
2020: $5,287
According to the United States Department of Agriculture, an average two-person household will likely spend around $600 on groceries per month. Our average monthly bill is around $500. We shop at Whole Foods and Trader Joe’s. I noticed an increase in our grocery bill due to the changes we made to our diet. More fresh vegetables, organic items, and less processed foods. A dozen eggs will cost me around $5. A loaf of bread is $4. We do not buy milk. We do buy rice milk though. Those are a few items we purchase weekly.
Gas -
2021: $306
2020: $511
The average person spends just over $1,000 on gas every year. We have one car, and I hardly drive it. I walk to work every day, while my wife uses the car to get to and from university, which is about a seven minute drive from our apartment. Our car is a hybrid which gets ~55 mpg in the city. To fill up our car from empty costs around $25. We didn’t take any big trips this year. We drove to Florida and Texas, and that’s about it.
30% - WANTS
Restaurants -
2021: $1,346
2020: $255
The average household spends over $3,000 a year on eating out. We do not eat out all that much. I always bring my lunch to work, it’s nearly always a salad. I have a credit card that gives me a $10 credit for Grubhub and UberEats each month, so we use both of those services monthly. I usually go pick up the order to save on the delivery fee and a tip. We dine-in at restaurants every now and then.
Alcohol -
2021: $1,604
2020: $1,672
We (I) buy a lot of wine. That is my preferred drink of choice by far. I’d say we drink a bottle of wine a week. Some nights we drink two bottles (usually weekends). We also buy IPAs, hard seltzers, champagne, vodka, and random other drinks. We go out for drinks once or twice a month.
Clothes -
2021: $2,232
2020: $4,810
According to this Forbes article, the average American family spends $1,700 on clothes. I should probably cut back on my clothes spending. I did buy a new suit this year as well as some new loafers and a watch. My wardrobe needed an update for work. My wife got some new threads too.
Pet -
2021: $365
2020: $164
We have a cat. All we buy him is food, litter, and occasional cat toys. That’s about it. We also paid someone to look after him while we went on vacation.
20% - SAVINGS
Investments -
2021: 30%
2020: 33%
We have several investment accounts: Roth IRA, HSA, 457b, and a pension. We contribute to each of them monthly. I am playing catch-up on my savings since I didn’t do as much in my early twenties. This year we invested more than 30% of our income. Some of that is directly taken out from our paychecks, while the rest we do manually in our taxable brokerage account.
