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Put 15% of your gross income towards investing or paying off debt. (That’s 15% of your income before taxes or any other deductions come out.)

If you're trying to build wealth, this is the most important part of your budget. The rest of your money is spent and gone at the end of the month. This is money that you keep for yourself from all your hard work.

As long as you do this (and you're not racking up debt in the background), you're making great progress in your finances. If you can't hit 15% just yet, start with something - anything! - to build the habit of saving money every month. Then challenge yourself to increase that amount every month until you hit your 15% goal!


Rent, groceries, utilities, car payments, gas, insurance, minimum debt payments, child care - anything you have to pay to exist that isn’t a luxury, it all goes here.

Once you add all of them up, you want it to be less than 55% of your take home pay (what hits your bank account after taxes and deductions). The further above this line you get, the harder it is to make a budget that works.

If you feel like you've cut back on everything fun in your budget and still can't seem to get ahead, dollars to donuts you're breaking this rule.

Whip out a budget template that shows your spending as a percentage of income (get ours here), and you'll likely see what you need to change very quickly.

Practically, for most people, that means making trade-offs. As the wise Paula Pant says, you can afford anything, you just can't afford everything.

What does this mean? It means you can splurge on certain items in your budget compared to others if they're important to you, you just can't splurge on everything in your budget, and might actually cut back drastically on some areas other people find essential.

If you decide to live in a city where rents are higher than the Sears Tower (I'm looking at you Chicago), then you might decide to get a roommate or live without a car so your spending on necessities still falls below 55%.

If you decide that private school for your kids is a must, that might mean not getting the kids a dog and living in a smaller house to save several hundred dollars in fixed costs per month.

My wife and I have spent our entire marriage with only 1 car. This has meant spending extra attention to coordinating our schedules so we can each get where we need to go, but 98% of the time it doesn't impact us at all, so it's easy to give up.


But the extra $500/month we save in car related costs have allowed us to travel like crazy people. Just in the last year we've gone to NYC, Washington DC, Virginia, Utah, Arizona, Mexico, Minnesota, New Mexico, and Colorado. For us, that's a trade that's well worth it.

(Side note: The travel expenses don't go into the "essentials" category in our budget, but saving on the car expenses helps push our essentials spending well below the 55% threshold, which allows us to have more for fun money while still saving at least 15% of our income.)

What's important is to find what spending priorities really matter to YOU, then find all the other areas you can cut back on to have enough space to build wealth while having a budget that lets you love your spending right now.


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Keeping an extremely strict budget hurts people in two ways.


Those who are natural spenders will feel squeezed and give up on the budget long before it's had enough time to build great results for them.


Those who are natural savers will love tracking their spending, optimizing every last cent out of their spending - but forget to live now and enjoy each step of their journey. 


Putting 5% of your income towards "wild" money gives the spender enough fun to stick with the plan, and forces the saver to learn how to spend money joyfully.


This money has no rules attached to it (other than keep it to 5% of your budget!) Spend it foolishly. Spend it recklessly. Spend it on something stupid that other people would laugh at but matters a lot to you. 


Love crocs and want a pair in 32 different colors? Use your wild money and start building your collection. Want to spontaneously buy a hotel room for a homeless person for the night? Out comes the wild money. 

As long as you're keeping a good track of the other 95% of your budget, this money is yours to get crazy with. Enjoy it!


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