It’s 2023 – Is Your Money Being Well Spent?
It’s no secret that saving money is challenging. Some may even argue it’s impossible considering the economic world we live in today. Even with all the budgeting and cash flow tracking apps available, many people struggle to change their spending habits on a daily basis.
Nevertheless, retirement isn’t going to wait until there’s a more convenient time to save, so let’s make 2023 the year you put some sizzle (money) in your retirement savings.
A great rule of thumb when checking to see if you’re saving enough is to utilize the 70/20/10 rule. This idea provides you with a framework for managing your finances, limiting your spending, and assessing any debt that you plan to take on.
According to the 70/20/10 rule, you should spend:
- 70% of your after-tax income on living expenses, such as food, childcare, insurance, discretionary expenses, and your rent or mortgage.
- 20% on savings, such as your retirement account, emergency fund, college fund, or other savings goals.
- 10% on consumer debt, such as credit card payments or a car loan.
An important thing to note about this handy rule is the 70% and 10% are maximums. This means you should spend no more than those percentages of your income on those categories. On the other hand, the 20% is a minimum. That being said, you should try to put at least 20% of your income toward savings goals.
The 70/20/10 rule gives you a great framework to help you track if your money is being well spent, but it can be daunting to get started. And to that our recommendation would be to start small. Implementing something as simple as maintaining a financial diary may help you become a more self-aware — and better — spender. Keeping track of your actual spending and seeing how it matches up against your ideal budget can allow you to identify the areas of improvement.
As you begin the process of allocating your finances it’s important to keep in mind, adjusting your financial habits won’t happen overnight. Just like setting any other resolution, you may end up quitting after the initial motivation is gone if you don’t approach it correctly. Building better spending habits is an investment. Once you get in the habit of making better spending decisions, hopefully you will be able to see signs of long-lasting improvement.
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