In an ideal world we’d buy everything with the leaves on the trees, but since we can’t, we must budget. A basic budget is simply allocating resources to cover your expenses. This process requires determining necessities, saving for unexpected emergencies, and minimizing expenses.

For the purposes of generalizing, I’m going to base the following example off of someone who is solely responsible for themselves. You can scale this budget up or down to fit your personal needs. I will show how to amend the budget towards the end.

The first part of the budget is the income. This is important because this will determine your expenses. While there are many different theories on income to expense ratio(30/20/50, 70/20/10, Dave Ramsey’s budget ratio etc.), adapting what is right for you boils down to goals. Idealistically you want to initially save $1000 for your emergency fund. Long term, you should save 6 months of living expenses. Keep that in mind.

For our example, we’re going to use Jo. Jo is established, but doesn’t have a budget. Jo is a lab tech making about $20/hour or about $44K/year (the average salary in America). After state and federal taxes as a single filer with no tax credits, Jo’s monthly take home pay is $3,253.59.

Basic necessities include savings, giving, housing, food, utility, and insurance costs. Depending on your city, luxury, climate, etc., you will have transportation and recreation costs as well. (I will put those in for a complete comparison.) I will also include student loan payments (average $80K), as debt repayment is common in today’s climate.

Assuming Jo lives in Idaho (where the median household income is closest to that of the country’s median and the value of the dollar is slightly more (8%) higher than that of the national average), the average rent/housing cost is about $1250 (rounding up). Utility cost (HVAC, gas, electricity, and water) is averaged at $350/mo. Car insurance is about $48/mo (note: this is in Idaho, the national average is about $74/mo). Health insurance is about $231/mo. Renter’s insurance is about $13/mo. Life insurance is about $68/mo. The average car payment is about $391/mo. The average gas consumption for your vehicle is $386/mo. The average food cost is $244/mo. We’re going to cap recreation costs at $100/mo. The debt repayment for the student loan with respect to his income is $485.81/mo. I leave savings and giving for last, because these will fluctuate based on the margins.

If you look at the chart, Jo’s expenses are well over 100%, per the average prices of all basic expenses within the country. You cannot breakeven. If this persists you will rob Peter to pay Paul, yet consistently digging deeper into debt. The budget proposed is assuming there are no rainy days. What happens when your car breaks down? Or a recession hits or COVID-19?

This is why you have to budget. How to augment the budget for success? Get your expenses down and/or increase your income.

Going through every expense, and scrubbing the budget, the first expense is a tithe. This is a necessity. It is the key to eternal success because it is a basic act of obedience.

The next expense for Jo would be housing. For me, I don’t do well with roommates that aren’t family, so when I was first out on my own, I knew this was going to be my bulk expense. I lived within my means, but I definitely didn’t stay within the recommended 25% of my income. I had little to no other expenses though, so understand that whatever you choose to be of the upmost importance, you need to build the rest of your budget around this expense. For Jo, we’re going to lower the housing cost to include at least one roommate, so slashing both the rent and utilities costs in half.

Next, Jo’s student loan payments are critical to financial freedom, so for the time being this value will go unchanged.

Rather than having a car payment, Jo drives an older car that cost $5000. This brings down the car payment to $111/mo. (This is the payment cost for an auto loan for a $5000 car with $0 down for 48 mo. I don’t recommend this! The interest associated is ridiculous, but Jo is between a rock and a hard place). Jo will choose also to commute or take public transit to work cutting the monthly gas contribution to $200/mo.

Jo also only eats out one meal a week and meal preps at home for the rest of the week. This brings food costs down to about $200/mo (assuming Jo eats a lot of fresh produce). (If Jo eats more processed foods, this cost will go down drastically. Even opting for more frozen produce will cut this cost.)

There’s very little to be done about the costs of insurances in America. There is much to be said, but to side on the error of peace, these values will stay the same within the budget. Now, even with the current differences in the budget, Jo now has about 20% of the budget left to work with to put into both savings and giving. Depending upon your debt, financial goals, and reasons for saving, you will need to augment the budget more or less.

You can increase your food costs, if that’s important to you, at the expense of your recreation cost. You can save more by eliminating your recreation cost all together (there are plenty of free things to do). You can eliminate your transportation costs or drastically minimize if you work from home, at the expense of better wifi costs (assuming wifi is built into utilities costs). (Also note, we have neglected Jo having a cell phone and associated bills. Jo’s best bet is probably prepaid at this point). You can decrease your housing expenses drastically if you acquire more roommates or move in with family. If you are in college, you can eliminate and/or drastically decrease the student loan payments based on the amount of scholarships you receive (I will do a separate post on college cost hacks).

Understand if you are not breaking even or only breaking even on your budget, you need to “live like no one else , so later you can live and give like no one else” (in the words of Dave Ramsey). So eliminating nonessential wants is crucial. This goes back to the changing of the mindset. Looking at money as a tool, if you cannot breakeven for your necessities, you should not acquire expensive habits like nail care, luxury hair care, name brand clothing, and expensive cars, until you have that gap in your budget percentages (again, see Dave Ramsey Budget Percentages). Viewing these unnecessary expenses as necessities will leave you in a poverty mindset.

Now that we have about 20% of Jo’s money freed up, I recommend dividing the values into savings and giving. Savings for the purpose of emergencies should total about 6 months of living expenses. In Jo’s case, about $15500. According to the Dave Ramsey budget percentage, you want to save about 10% of your income and give about 10% of your income. If you count tithing for giving, you are good to go. I often go beyond my tithe by giving 10% to other sources: homeless help, non-profit organizations, or being a blessing to others (paying for the dinner bill or as I feel led to do so). While this is a luxury, I never want my obedience to have a cap to it, so I include additional giving as another necessary budgeted expense. Jo will give 5% to additional giving. Assuming Jo has goals to not have a roommate, to buy a nicer car, to own property, to start investments, etc., Jo will save 15% of his salary, which is more than the recommended 10%. This will allow Jo to reach his 6 months of savings within 2 years, contingent upon budget consistency and no emergencies.

The second way to offset your budget is by increasing your income. Researchers have pinpointed that millionaires have 7 streams of income. With the current financial climate in the country, as evidence of our discussion with Jo, to achieve generational wealth and plan for the future, multiple streams of income are necessary. Tomorrow, I will speak on how to form different streams of income for yourself with minimal time and effort. More specifically, some side hustle ideas with little to no start up capital needed.