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Episode 2923:
Jessica challenges conventional money advice, like the 50/30/20 rule, as ineffective for high-achievers. Instead of following one-size-fits-all budgeting models, she suggests decluttering financial priorities and creating personalized guidelines that align with individual goals and seasons of life. This approach helps achievers build a financial plan that truly supports the life they desire.
Read along with the original article(s) here: https://www.nachoaveragefro.com/blog/50-30-20-budgeting-wont-help-you-build-the-life-you-desire
Quotes to ponder:
"You cannot build the life you want using someone else's rules."
"Eliminating overwhelm is always the first step."
"Your budget line items will drive your actions and subsequent habits and routines."
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[00:00:00] This is Optimal Finance Daily. Conventional Money Advice Won't Create The Life You Want by Jessica of NachoAverageFro.com. And I'm your host and personal finance enthusiast, Diana Merriam. Let's get right to it as we optimize your life. Conventional Money Advice Won't Create The Life You Want by Jessica of NachoAverageFro.com. Why Conventional Money Advice Doesn't Work
[00:00:32] The high achiever feels overwhelmed because they have not defined what's right for them. Do more is the unspoken guideline that drives their life. As such, they often struggle with being intentional in various aspects of their life, including their money. For the achiever, the key to being intentional with their money is to stop using conventional standards to budget it. A common rule that my clients use before our work together is the 50-30-20 rule.
[00:01:03] Rules like the 50-30-20 are helpful, but they will not help you create the life you want. In this blog, you'll learn why rules like 50-30-20 often don't work for achievers and how decluttering can help you budget your money and achieve your goals. Using the concepts from this blog, you'll stop feeling like you've made more money, but don't see it or feel it.
[00:01:28] What's wrong with 50-30-20?
[00:01:30] The 50-30-20 rule states that 50% of your income should go to needs, 30% to wants, and 20% to debt payoff and retirement. It's a fine system, especially if you're brand new to building a budget. But that's typically not the case for the overachiever.
[00:01:48] The high achiever isn't new to money advice or budgeting. Their problem is not that they don't know enough or that they need a new framework. They know a lot, and despite that, they continue to learn more. Their problem is that they have yet to identify their own rules for money management.
[00:02:07] 50-30-20 assumes you believe you require 50% of your income to go to your needs, that when you have the opportunity to pay debt or invest in retirement, you would rather spend your money on your wants.
[00:02:20] 50-30-20, you have actually done the work to define needs, wants, and retirement for yourself.
[00:02:27] You want carrying and paying off debt to be a staple in your life.
[00:02:31] And this is the ideal split no matter what season of life you find yourself in.
[00:02:37] Here's the thing. Maybe none of this is true for you.
[00:02:40] If that's the case, instead of getting the life you desire, you'll get the life someone else dreamt up for you,
[00:02:46] and the millions of other people who are taking this same advice.
[00:02:49] You cannot build the life you want using someone else's rules.
[00:02:54] Becoming more intentional with your money means learning to create your own guidelines for your money.
[00:03:00] This will create alignment with the life you desire and drive decision-making in support of that life.
[00:03:07] A helpful mantra to adopt, eliminating overwhelm is always the first step.
[00:03:13] Why is elimination always the first step?
[00:03:17] Before you review your expenses and start grouping them into the need, want, debt, and retirement categories,
[00:03:24] review your expenses and ask yourself,
[00:03:26] is this something I want to continue to give my money and attention to?
[00:03:31] When following conventional advice,
[00:03:33] most people create a list of all their expenses and then group them accordingly.
[00:03:37] Instead of getting rid of what's not serving them,
[00:03:40] they organize the cluttered expenses that leave little to no money for the things that actually matter to them
[00:03:47] into a nice, pretty budget.
[00:03:49] Things you no longer want or need to spend money on get added to your monthly budget.
[00:03:55] Things like subscriptions to online services,
[00:03:59] random withdrawals from your bank that you can't explain later,
[00:04:02] hundreds of dollars spent eating out, bar hopping, and shopping,
[00:04:06] and gym memberships, storage units, and other expenses that are helpful but not aligned.
[00:04:13] The allocated expenses in your budget should be a necessity
[00:04:17] and or something that helps you do what you love and become who you desire.
[00:04:23] Everything else is overwhelming.
[00:04:26] Once you've removed these items, then you're almost ready to build a budget.
[00:04:30] The next step is to define what you want to use your money for.
[00:04:34] How do you create guidelines?
[00:04:37] How would you define a need or want?
[00:04:40] What are each of your needs?
[00:04:42] What goals do you have that should be reflected inside your wants?
[00:04:47] How long do you want to be paying off debt?
[00:04:49] How long are you willing to allow debt as a line item after debt is paid off?
[00:04:55] Do you want to save for retirement?
[00:04:57] If so, what does that mean?
[00:04:59] Answering these questions is the key to creating a budget aligned with the life you want
[00:05:04] and making it easy to be intentional about how you spend your money.
[00:05:08] For example, what if you gave more than 10-20% to debt?
[00:05:13] How quickly would you pay it off?
[00:05:15] What could you invest your money into if you had hundreds of dollars to give to another goal?
[00:05:21] Your budget line items will drive your actions and subsequent habits and routines.
[00:05:26] Once you have defined each of these categories for yourself,
[00:05:30] then you're ready to create a budget that supports the life you desire.
[00:05:34] This budget will create the right triggers for how you desire to spend your cash.
[00:05:39] Brittany's Story
[00:05:41] Brittany, a married late 20-something, joined our program while she was working a 9-to-5
[00:05:47] after having spent several years as a full-time entrepreneur.
[00:05:51] She went back to corporate America to create financial stability,
[00:05:54] but her ultimate goal was to grow her business and save enough money
[00:05:58] to return to entrepreneurship full-time.
[00:06:01] She often feared that achieving her goals and pursuing her own needs
[00:06:05] would come at the expense of others.
[00:06:08] As such, she had created a life that put her needs on the back burner.
[00:06:13] She wanted to create a life with space for her needs,
[00:06:15] as well as the needs of those that she cared for most.
[00:06:19] Her monetary goal was to save $10,000 and create money for emergencies and self-care.
[00:06:25] This would allow her to save up enough money to feel comfortable leaving her job
[00:06:29] and make room for the life she desired.
[00:06:31] Instead of a conventional 50-30-20 split between wants, needs, and debt retirement,
[00:06:38] we created a personalized framework based on what she desired.
[00:06:42] Her split was 40, 16, and 44.
[00:06:46] 40% needs, 16% wants, and 44% savings.
[00:06:52] In the 90 days she spent inside the coaching program,
[00:06:56] we set her up to achieve her goals.
[00:06:58] With her new budget, she reallocated 36% of her income into savings,
[00:07:04] 16% more than conventional advice allows for.
[00:07:08] She spent the first 30 days getting acclimated to her new way of spending.
[00:07:12] In 60 days, she paid off two credit cards and saved $1,400 towards her
[00:07:18] I-want-to-quit-my-job savings.
[00:07:20] She even started funding separate savings accounts for her self-care indulgences
[00:07:25] and emergency fund, giving herself 5% and 12% respectively.
[00:07:31] What's your split?
[00:07:32] If your desires and goals were the highest authority for your budget,
[00:07:36] how would that change the way you spend your money?
[00:07:39] You don't need to try more or new frameworks for managing your money.
[00:07:43] You simply need to eliminate the overwhelm.
[00:07:50] You just listened to the post titled,
[00:07:52] Conventional Money Advice Won't Create the Life You Want,
[00:07:56] by Jessica of NachoAverageFro.com.
[00:07:59] And I'll be right back with my commentary.
[00:08:02] I think guidelines like 50-30-20 can be helpful to consider
[00:08:07] when you're coming up with your financial plan,
[00:08:09] but you'll likely need to make adjustments
[00:08:11] to accommodate your unique circumstances and interests.
[00:08:15] Everyone has different ways in which they will use money
[00:08:19] as a tool to create a life of meaning.
[00:08:21] For me, when I was working a full-time W-2 job,
[00:08:25] I was saving and investing 60% of my income.
[00:08:28] It was a season of life where my income was high.
[00:08:31] I was single with very few responsibilities and demands.
[00:08:35] And I was able to experiment with frugality
[00:08:37] and intentional spending on my own terms.
[00:08:40] My attitude then was to see how little I could spend
[00:08:44] and still be happy.
[00:08:46] Now my situation is much different.
[00:08:48] I'm married with a stepson and three fur babies.
[00:08:52] I own a home, a business,
[00:08:54] and a substantial amount of assets.
[00:08:56] I no longer need to save and invest for retirement
[00:08:59] if I don't want to.
[00:09:00] So at this stage, I've decided to invest
[00:09:02] around 10 grand per year in my Roth IRA and HSA,
[00:09:06] and then spend the rest.
[00:09:07] I'm actually challenging myself to spend more in this season
[00:09:11] and invest in things like my health.
[00:09:14] As long as you're spending below your means,
[00:09:17] the amount you save and invest is completely up for debate.
[00:09:21] And you may even find that your split will change
[00:09:24] depending on your season of life.
[00:09:26] But that should do it for today.
[00:09:28] Have a happy rest of your day and weekend,
[00:09:30] and I'll see you on the Monday show tomorrow
[00:09:32] where your optimal life awaits.