Meredith Jones is a veterinarian and financial expert. She co-founded the Veterinary Financial Summit and started a Facebook group that helps thousands of vets combat student debt.
With everyone from Forbes to CNN predicting a 2023 recession, now is the time to buckle down on your finances. What if we could reframe how you think of a budget by calling it a “cash flow plan”? Rather than being restrictive, a cash flow plan can empower you to consciously direct how you spend your money.
Why is a cash flow plan important?
Unexpected expenses happen – they just do. No one needs the added stress of being unable to pay for them.
An unanticipated car repair can easily send you into a spending freeze. Your money begins to control your life, impressing undo stress on your day to day.
Choosing a budgeting plan improves your quality of life by providing peace of mind and financial stability. And it truly does not have to be complicated.
3 powerful, yet simple, budgeting solutions that even the busiest veterinary professionals can implement:
1. The 50-30-20 Solution
This concept is based on separating your (after-tax) income into 3 broad categories: needs (50%), wants (30%), and savings (20%). Simple, right?
What are needs? They are life essentials, including food, housing, utilities, transportation, insurance (health, disability, life, home, car), childcare and other necessities.
What are wants? They are items that improve your quality of life but are not necessary for survival. Wants include a gym membership, entertainment (Netflix, anyone?), vacations, gifts, and beauty products.
An easy way to differentiate between the two is to ask yourself whether you can delay spending money on an item without severe repercussions, such as paying a penalty, losing your home, or going to jail. If you cannot delay the expense (credit card bill, car payment, rent), then the item is a need. If you can put off buying it (yoga classes, vacation, cell phone upgrade), then the purchase is a want.
Here are 3 examples:
Eating is a need. Cage free eggs, Kona coffee, and organic blueberries are wants.
A car may be considered a need. Driving a Porsche is a want.
Wearing shoes is a need. Wearing $700 Christian Louboutins is a want.
We are certainly not talking about living like a pauper or student forever. Remember, in this system, 30% of your take-home money goes toward wants. The final category, savings, represents the remaining 20% of your net income. You could simply split this money into two equal amounts: 10% for short-term savings or an emergency fund and 10% for retirement investing.
2. The 70-30 Rule
This incredibly simple method was inspired by author and motivational speaker Jim Rohn, who recommends living on 70% of your income and saving 30%.
70% includes everything you need or want — housing, utilities, food and clothing, small pleasures, and even luxuries. What about the remaining 30%? Jim Rohn suggests an even three-way split between donating, saving, and investing.
3. The 60% Solution
We believe the 60% solution is one of the best systems available for managing your money.
Financial expert Richard Jenkins, the creator of this concept, advises allocating 60% of your net income to “committed expenses”: groceries, clothing, insurance, debt repayment, donations, and recurring charges. You then divide the remaining 40% equally among 4 categories:
- Short-term savings: non-critical expenses that might or will happen in the near future such as holiday gifts, vacations, repairs, and maintenance
- Long-term savings: fund CE, a special vacation, or a down payment on a car or a house
- Retirement savings: your retirement plan and/or other long-term investments
- Fun money: your guilt-free spending money – use it for movies, concerts, bungee jumping, weekend trips, etc.
These 3 budgeting concepts provide you multiple options that can cater to your personal spending habits and goals. The categories are fairly broad, so don’t feel that you have to monitor every penny spent.
Once your cash flow plan is in place, peace of mind follows.
It is a good idea to reassess your spending regularly to be sure it matches the percentage of breakdown from the system you chose. If you find that your percentages are radically different, simply make a few adjustments.
Just remember: each system provides a fairly generous amount for fun, experiences, and much-earned vacations. We firmly believe in finding a happy balance between work and fun!
Meredith Jones is a veterinarian and financial expert. She co-founded the Veterinary Financial Summit and started a Facebook group that helps thousands of vets combat student debt. Learn more at drmeredithjones.com. Dr. Phil Zeltzman co-authored this article.
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