There's no denying the relationship between money, stress and poor health. For most Americans, (including myself) money is the #1 stressor. Among other things, chronic stress increases the likelihood of depression, viral infections, obesity, high blood pressure and heart disease.
Last month, I decided it was time to take control of my current and future financial state. To kickstart my journey towards financial wellness, I attended the Get Your Sh*t Together: Budgeting and Debt class hosted by a Northwestern Mutual representative. Below are my takeaways.
- 60% budget - Essential expenses (housing, transportation, health care, etc.)
- 20% budget - Saving and investing
- 20% budget - Discretionary fund
The 60/20/20 rule is a good starting point if you're new to budgeting. Use the Northwestern Mutual Budget Worksheet to see where you're at and adjust where necessary. For instance, my essential expenses only make up 48% of my budget. So I split the remaining 12% between my saving and discretionary funds.
I've been using Mint to monitor my spending and to keep myself accountable. The free website/app tracks your spending habits and notifies you if you've exceeded a budget line item.
Save 3 to 6 months of essential living expenses for emergencies (job loss, car issues, medical bills, etc.). This should be the first savings "bucket" you fund. Once you reach your desired dollar amount, direct your savings to another fund of your choice (travel fund, down payment fund, etc.). I found it helpful to set up multiple savings accounts with Ally Bank for each of my goals
The cost of your rent or mortgage should not exceed 1/3 of your take home pay. This guideline takes into account the price of living in a desirable city.
There are three types of debt -
- Good debt: Mortgage and student loans
- Bad debt: Medical bills and installment payments
- Non-deductible payments: Car or personal loans
Pay off debt in the following order: bad debt, non-deductible debt, then good debt.