My Budgeting Basics

I work in the media industry and I do not make a large salary. I also do not have a trust fund – I live off of my salary alone.

Calculator and Coins

So, please believe me when I tell you that the way I’ve been able to travel multiple times each year since graduating college is through budgeting. And through this blog I hope to show you how any person can make their travel dreams a reality with a little will power and smart planning. Now let me be clear – socking away money for future travel is a dreary exercise in self-discipline when you’re living in an urban playground…or anywhere for that matter. While my coworkers and peers were clubbing in the Meatpacking district and scanning the sample sales for discounted designer duds, I was “splurging” on 40%-off jeans at Ann Taylor Loft. But don’t feel bad for me! This is not a sob story! Travel is what makes me happiest, and I have been able to do a TON of it (on average, one trip every three months since 2010 including three trips to Europe and a fourth planned this summer).

What made all of that possible was – what I believe is – a novel approach to budgeting that differs from what they teach in most textbooks (that is, if you were lucky enough to actually learn personal finance in your school).

As you may know, one of the basic accounting formulas is Revenue – Expenses = Profit

That’s GREAT for businesses whose goal is to pay their shareholders with whatever their profits net out to be. However, it’s NOT SO GREAT when you’re trying to apply that thinking to your own daily budgeting. What the heck do I do if I want to take a trip to Europe next month….not eat?!?

So I’ve changed the formula for myself and put every cost of mine into the expense category. By re-framing my budget in that way, I’ve not only been able to save 10%+ of my income every year for retirement, but I’ve also been able to say “yes” to several dream vacations!

Here is my formula: Revenue – Expenses = Break-Even

The layout that I use looks like this:

Travel expenses are prioritized as 10% of after-tax salary

Travel expenses are prioritized as 10% of after-tax salary

As you will see, I have put an aggressive sum of 10% of my salary towards both retirement savings and travel budgets. The final “expense” in my budget is my play fund (which can be considered a slush fund if you prefer). The play fund consists of ALL of my remaining dollars for the year. This money must suffice for any flexible living and entertainment costs – i.e. groceries, happy hours, Christmas gifts, wedding presents, toilet paper, toothbrushes, manicures, JCrew sales, etc. If I spend more cash one day than what my daily “play” fund allotment is, then I force myself to make up for it the next day. Plain and simple.

But simple is not always easy. It’s WAY too tempting to “kick the can down the road” and say, “well next week I’ll spend less to make up for [fill in the blank].” And next week never seems to come. That’s why it’s important to track your spending habits (monthly) and make sure you’re actually on track with your budget. Knowing where your money is actually going vs. where you thought it would go is an important exercise. This allows you to make small corrections over time. After all, a budget should be a living, breathing document, always subject to refinement.

In this way, and by prioritizing travel as an upfront expense, I have been able to use my vacation days for fun adventures. It’s a slight tweak on what that old wealthy Babylonian guy says in The Richest Man in Babylon – the “pay yourself first” philosophy. That philosophy has typically been applied to saving towards retirement and building wealth, but I choose to also apply it to travel. For me, a slightly earlier retirement without meaningful travel along the way just wouldn’t be worth it. So, instead of buying all of the latest fashions, going to Broadway musicals, or bar-hopping weekly in the East Village, I’ve gone to Wales, Ireland, London, Amsterdam, Bruges, Vancouver, West Palm Beach, Tucson and more. Travel has been my top priority, and I’ve never regretted it for a second!

Whether it is travel or some other passion, everyone has their own financial goals that they want to strive for. Maybe you really want to save up to go to Machu Picchu. Or maybe you just want to buy a MacBook Air or a leather Prada tote. If you feel you need a boost to start budgeting, I’ve created a downloadable version of the sample budget in this Google Doc that you can reference and tweak to your needs. Here’s to hoping this method works for you, too!




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