DEVTOME.COM HOSTING COSTS HAVE BEGUN TO EXCEED 115$ MONTHLY. THE ADMINISTRATION IS NO LONGER ABLE TO HANDLE THE COST WITHOUT ASSISTANCE DUE TO THE RISING COST. THIS HAS BEEN OCCURRING FOR ALMOST A YEAR, BUT WE HAVE BEEN HANDLING IT FROM OUR OWN POCKETS. HOWEVER, WITH LITERALLY NO DONATIONS FOR THE PAST 2+ YEARS IT HAS DEPLETED THE BUDGET IN SHORT ORDER WITH THE INCREASE IN ACTIVITY ON THE SITE IN THE PAST 6 MONTHS. OUR CPU USAGE HAS BECOME TOO HIGH TO REMAIN ON A REASONABLE COSTING PLAN THAT WE COULD MAINTAIN. IF YOU WOULD LIKE TO SUPPORT THE DEVTOME PROJECT AND KEEP THE SITE UP/ALIVE PLEASE DONATE (EVEN IF ITS A SATOSHI) TO OUR DEVCOIN 1M4PCuMXvpWX6LHPkBEf3LJ2z1boZv4EQa OR OUR BTC WALLET 16eqEcqfw4zHUh2znvMcmRzGVwCn7CJLxR TO ALLOW US TO AFFORD THE HOSTING.

THE DEVCOIN AND DEVTOME PROJECTS ARE BOTH VERY IMPORTANT TO THE COMMUNITY. PLEASE CONTRIBUTE TO ITS FURTHER SUCCESS FOR ANOTHER 5 OR MORE YEARS!

Creating a Personal Budget

The following does not necessarily follow the rigid principles laid out by Financial Planners or Financial Services websites. This is simply a budget for the everyday entrepreneur. I have built my own personal budget in this way and have been able to keep a clear conscious picture of my finances, net worth, and investment goals as a result.

In my opinion a budget is incredibly personal, it is a reflection of each individual entrepreneur’s goals and record keeping styles. Though I don’t think every entrepreneur should keep the same budget, I do strongly encourage every one, entrepreneur or otherwise, to keep an accurate and updated budget. When one is able to keep a clear conscious picture of their finances in mind at all times, there seems to be much less worry and post-purchasing guilt.

Defining Your Financial Goals

i.imgur.com_mrchcnh.jpg What I have found to be the most integral part of my budget time and again are goals. Before sitting and opening up a spreadsheet application to start logging numbers, sit down with a notepad and a pen and ask yourself the following:

  • What are my personal short-term and long-term goals?

By answering this question accurately, we can approximate all types of numbers including how much to spend on weekly entertainment. This is because when you have a clear goal or set of goals defined in your mind, you can distinguish between what is truly important to you as an individual and what is not.

Often times, goals change as time passes, however I have always had a few long-term goals that have stuck with me through the years that have been very helpful in curbing my spending habits and making me more fiscally responsible. For example I have sat and asked myself the same question several times and the following have goals have always helped to encourage and motivate me towards financial independence and responsibility.

  1. Starting My Own Business
  2. Owning a Home
  3. Owning My Dream Car
  4. Building a Substantial Portfolio

Granted, these are my longer-term goals that have helped me to curb my expenses and help build habits of financial independence, however shorter-term goals are a necessary part of one’s budget in order to help reward for good financial practices behaviors.

However it is important to note, with short-term goals I am referring to goals that will take 6-months to a year to realize. When thinking of your short-term goals concentrate heavily on that expensive purchase that will make you more efficient or truly add to your quality of life. I look at short-term goals as expenses that I would like to make, have quantified a personal benefit to, and take a substantial dollar value expense to realize.

One example of this could be my goal to purchase a newer, quicker laptop with more features. This is an expense that would have cost double my rent, though it added significantly to my efficiency because I am now writing significantly more and did not want to keep using a laptop that crashed or gave me unexpected problems otherwise. I find it important to illustrate my idea of a short-term goals because I don’t consider short-term goals to be consumer goods like shoes or concerts, but don’t worry I will address these expenses later.

Adjusting Current Expenses

After defining savings goals, starting a personal budget means that you need to have a hold on your expenses. A lot of people will spend money with little knowledge about their bank account balance or available credit. As consumers, when we do this we are allowing for an unbalanced budget and positioning ourselves to accumulate unnecessary debt.

Therefor the next question to ask after answering the previous goal question is:

  • What regular expenses are important to me?

This question is crucial and will invariably define the lifestyle you live. This is a tough question to answer considering many young entrepreneurs have unfortunately grown accustomed to accumulating debt. If you have debt or bad habits about accumulating debt, it’s ok! That is, it’s ok because presumably you have realized that fact, and are working towards changing it since you are reading this article, good for you! What you need to do now it think very hard about the question above and define those expenses that are important to you.

For example, I personally am not a big foodie, and I almost never buy high-end clothes or merchandise. However I am a big fan of Starbucks Iced Coffee’s, and I am a stickler for WiFi speed in the home. When asking myself what expenses I thought to be important I allowed myself to allocate money to both of these expenses in order to spend without a looming feeling of guilt.

That being said, my personal budget reflects these spending behaviors. I may pay a higher monthly fee for WiFi as well as quite a bit on Starbucks. However my expenses in terms of food and clothes are kept to a minimum which offset the higher expenses paid for coffee and WiFI.

Additionally, when creating a personal budget, one needs to have a crystal clear idea of yearly income and total current debt. With debt the following need to be adjusted, in my personal opinion, neglecting debt before saving money in a savings account or investing in the stock market might not be the best decision. Paying minimum payments on credit cards or loan payments means you’re ultimately paying more for the purchases you’ve already made in the form of interest payments. These payments can add up quickly and it’s important to eliminate the possibility of lost investment opportunities because of debt payments getting in the way.

With a yearly salary of just over $24,000 and no accumulated debt, a personal budget would start by listing all of the expenses one has and gaining a clear picture of where your money is going.

A Template for a personal Budget might look a little something like this:

Income Source Monthly Annual
Hourly 1,280 15,360
Commissions 720 8,640
Ebay 250 3,000
Total 2,250 27,000
Expense Monthly Cost Annual Cost
Rent 750 9,000
Utilities 75 900
Car 150 1,800
Insurance 200 2,400
Food 300 3,600
Gas 150 1,800
WiFi 50 600
Phone 50 600
Savings 100 1,200
Investment 175 2,100
Total 2,000 24,000

This is simply an example of what $2,000 might go to on any given month. Including savings and investment (assuming you have no current accumulated debt) The minimum yearly salary required to fund a $2,000 a month expenditure would be a little over $24,000 when factoring in income taxes which is why I illustrated this example with $3,000 extra in income, which we can assume would go to taxes or transaction fees associated with the income sources.

You might notice that I left no room for clothes, magazines, online media subscriptions, etc. These should be added in to your own personal budget if they are deemed necessary after answering the question above. The expenses listed in the template above may not even apply to you, perhaps you use public transportation or split rent and utilities with a roommate. All that needs to be done is to open up a spreadsheet application and start listing expenses. It might help if you list the expenses in this order:

  1. Cost of living expenses (necessary spending including rent/utilities/transportation)
  2. Variable costs (such as entertainment, clothes, subscription services)
  3. Savings and Investment (Save what you can for the goals defined, invest what you wouldn’t regret losing)

I personally would save more in the form of investment, I currently save a high percentage of my net income on investing because I have background knowledge on the subject. However if you aren’t comfortable yet with investing there is no shame in allocating a higher amount towards savings rather than investment. Though I would encourage anyone and everyone to learn more about investing in stocks, I don’t encourage mindlessly choosing stocks and putting yourself at risk to lose a large portion of savings. i.imgur.com_vqxpuzw.jpg Lastly, when calculating income or expenses that are not set monthly expenses, all you need to do is approximate the total yearly cost and divide that by 12 (the 12 months of the year). Make sure this approximation is the best representation of the cost associated with whatever expense is in question. If you spend $2,000 a year on new business clothes, then simply do the calculation (2000/12) = $166.67 and add that number in to your monthly expenses. Similarly if you have irregular income but can approximate your total yearly salary at $30,000 (perhaps your a salesman that gets paid based on commission) do the calculation (30,000/12) = $2,500

Eliminating Unnecessary Costs

Generally when I take a step back and calculate my monthly and yearly expenses as shown above, I tend to find an area in my life where I am paying for something that I no longer deem necessary or realize I could live without to help realize alternative goals. I would suggest doing this personal audit as regularly as possible (obviously not every day but perhaps every 6 months or so) to help cut down unnecessary costs.

Let’s say for example you have looked over your monthly costs and notice that you are spending quite a bit on subscription services for online streaming media. Perhaps a portion of your expenses looks something like this:

Expense Monthly Cost Annual Cost
Spotify 10.64 127.67
Pandora 5.33 63.90
Netflix 8.51 102.11
Hulu Plus 8.51 102.11
Amazon Instant 8.79 105.44
Total 41.77 501.23

If this were the case, one could cut expenses by canceling some of the subscriptions listed above that are used least frequently. Cutting these services just in half would allow for an extra $250 in savings, investment, or other areas of expenditure that might be more important. Keep in mind $250 a year may not seem like a lot, but had you invested $250 a year over the last 5 years in the S&P 500 those $250 per year would now equate to a portfolio with net assets totaling $2,127.74. Not too shabby for a total of $1,250 invested over 5 years.

Though I strongly encourage everyone to sit down and make their own personal budget as detailed above. There are some services that try to help manage all of the financial data in our lives. One particular service that I would feel comfortable recommending is Mint. Through Mint you can link your bank accounts, brokerage accounts, and credit cards. This leads to some pretty cool graphs and they have some really great savings features that help you to set goals and create a conscious saving plan. Though don’t think Mint will do it all, it’s up to you to set up the savings infrastructure as I will detail below.

Building a savings infrastructure

When it comes to saving, it can be hard to put aside money for your short and long-term goals. Often times when we see the money from our paychecks get direct deposited in to our bank accounts we feel the urge to go out and buy that product we have been eyeing or have a night out with friends. Unfortunately these types of activities, though gratifying in the short term, are not in ling with our overall goals most of the time.

This is why I strongly advise to anyone seeking financial planning advice from me to set up automatic transfers for savings and investment. Presumably, the average paycheck is deposited in to your bank account in a predictable manner, whether it be weekly, bi-weekly, or monthly. Chances are that your bank has online features in place to allow for automatic scheduled transfers of funds. Given that by now you have detailed your income and expenses as shown above, you can safely assume how much needs to be transferred in order to meet your savings and investment goals.

Schedule your transfers for the day of, or day after your check is deposited. By doing this, you have no chance to spend the money you would have otherwise saved, making it very easy to meet your financial goals. Some direct deposit services even allow for a percentage of your paycheck to be sent immediately to savings or brokerage accounts. If this service is available to you, it’s hands down the most efficient way of making sure you don’t spend money meant for savings. Essentially you will have made your savings goals a no brainer, and are one step closer to financial independence.

Finally, managing your savings can be difficult, and with potentially several different savings goals it’s much nicer to be able to look at your online banking account and see the progress for each individual goal. Personally I use Capital One 360 for my savings accounts. I enjoy using their service because they have very competitive savings account interest rates, and give you the option to have as many sub-accounts as you want for each individual goal. This is very useful for me because you can title each sub-account and watch your savings progress grow as the months pass.

Additionally, you might want to look in to the Capital One 360 Interest Checking Account, they offer competitive interest rates on the money you hold in your checking account which ironically is not common place among financial services firms. Interest on my checking account balance? Sign me up.

Guilt-Free Spending

i.imgur.com_1co1rnw.jpg After having allocated money for all of your necessary costs and expenses it’s important to put a little extra thought in to how you will spend the rest of your disposable income. Perhaps you enjoy buying books regularly or nights out with friends weekly. These types of expenses aren’t necessarily essential and don’t always get tracked. Thats why I suggest setting aside money each month for specific types of spending.

If your lifestyle includes going out weekly, allocate a percentage of income that is reasonable and doesn’t take from your savings or investment goals, and place it in an envelope labeled “going out” or something like it. Once you have spent all of the money in the envelope for a month, don’t spend any more on that expense! That’s right, financial independence takes sacrifice, but if your’e willing to take the necessary steps for conscious spending, you can spend guilt-free and feel safe in your savings and investment goals.

By setting aside cash for different types of expenses you can spend the money without guilt, everything has been pre-planned and allocated for. There is no more worry about over-spending or living above your means. Planning here is key, and I can’t emphasis that enough.

How Much Should I Be Saving?

i.imgur.com_oprpxkh.jpg This tends to be a fairly popular question that I also wanted to address quickly here. Sometimes we have trouble deciding how much to save and end up being too ambitious and saving too much for a very short period of time, or we save too little not thinking about the long-term consequences.

One of the best rules of thumb I have been able to find about how much one should save is outline in the book The Millionaire Next Door. In this book the authors detail the habits of self-made millionaires. Subsequently they found that the best accumulators of wealth followed generally the same pattern of behavior in terms of savings.

The formula used to discern between Prodigious Accumulators of Wealth (financially independent, wealthy individuals) and Under Accumulators of Wealth (those who spend far beyond their means) was as follows:

(Age) x (10% of realized pre-tax income)

To illustrate a 25 year old making $50,000 in pre-tax income would ideally have accumulated:

(25*50000*0.10) = $125,000

Now don’t be alarmed if your savings aren’t don’t resemble the figure in your own personal calculation, again it’s ok, because now we are getting started and you’ll be there soon enough. Additionally this is the calculation for those individuals who have goals of personally accumulating millions of dollars for retirement, and that might not be the goal for everyone. However I did find this to be a great rule of thumb as well as a fantastic prediction for wealth accumulation, hence why I have detailed the example.

What Should I Do About My Current Debt

If you currently have debt and saving or investing isn’t in your near future as a result, there is one popular method among financial planners that I have found helpful in the past. Take a look at the various debts you currently have. Based on the interest rates of those debts, use the money from income that would normally be saved or invested and plow it in to the balance with this highest interest rate. Once the debt with the highest interest rate has been paid in full, move on to the debt with second highest interest rate and so on and so forth.

This method allows you to tackle the debt that is costing you the most in the form of interest. Eventually once all debts have been paid, you can then concentrate on accumulating wealth without the feeling of unmanageable debt looming over your head. After your debts have been paid off, follow the steps outlined earlier to ensure you don’t find yourself in the same situation again.

Conclusion

To summarize the most important parts of setting up a personal budget are as follows:

  1. Define your short-term and long-term financial goals
  2. Discern between essential and non-essential expenses
  3. Automate Savings and Investment
  4. Pre-plan expenses with allocated funds divided in to labeled envelopes monthly
  5. Sit back, relax, and watch your savings grow and enjoy guilt-free spending

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