Budget System

Dear Sophie,

This year I want to invest more in growing the business, so we need to tighten our belts at home. With the economy uncertain because of Covid-19, it's definitely time for a budget.

There are lots of budgeting systems, but I like the Barefoot Investor's approach because it is really simple and easy to stick to.

• Take your after-tax income and multiply it by 60% – that's your target for essential living costs (Eg: rent, food, transport, etc...)
• Try your best to reduce your essential living costs spending to meet the goal of 60%.
• The rest gets split into:
  • 10% for Splurge (Eg: clothing, gadgets, stuff that makes you happy)
  • 10% for Smile (Eg: holiday trips, dining out, experiences that make you happy)
  • 20% for Financial Security (Eg: savings, investment, early mortgage payments)

Sticking to a budget means learning to say No to your friends or yourself, which can be tough sometimes. But it also means trying to get creative and prioritise things that make you happy.

Love,

Daddy