The Master Your Money Bootcamp will help you put a price tag on your dreams – and figure out how to turn them into reality

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The thing about dreams is that we often assume they’re completely out of reach. Sure, if $1 million came our way, we’d pay our student loan debt off in full. Or take a safari. Or buy a house. Or throw the wedding of our dreams. But without that windfall, who can afford it, right?

If you do the math, you might be surprised.

Over the next month, that’s what we’ll be focusing on: Putting a price tag on your dreams and creating a plan to help you afford them in the future. We’ll start with pinpointing what exactly it is you want to accomplish with your cash, identify the right first step to take, and identify any challenges standing in your way. Then, we’ll calculate exactly what this goal will cost, and lay out a timeline for how long it will take to achieve.

We’re not going into this blindly. We know that the ability to afford your dreams depends on a lot of things: your job, your living situation, your credit, and the flawed systems in the US that favor some people over others. We know that if you dream of a private island, you’ll probably need more than a month of strategizing. But if you dream of things like laying the groundwork to become debt-free, or a homeowner, or pay for your children’s college, we can get you started on that journey.

Welcome to the Master Your Money Bootcamp

Master Your Money Bootcamps are month-long challenges broken into simple one-week exercises to help you take control of your money.

Over the course of 2021, we’ll conduct four of these Bootcamps, each culminating in a free, live, virtual discussion among experts about how to make the most of the tasks you’ve already accomplished. You can take all four Bootcamps this year, or pick and choose the ones that give the guidance you need most.

For each exercise, you’ll get a detailed explanation of how to complete it and why it’s important. Use the hashtags #MasterYourMoney and #MasterYourMoneyBootcamp to share your thoughts, progress, and connect with others across our Twitter, Facebook, LinkedIn, and Instagram as you make your way through each exercise, then join us for the live events.

While you’re here, feel free to visit (or revisit) our first Master Your Money Bootcamp of the year, which broke down the major task of demystifying your finances into four achievable steps.

Our first Bootcamp exercise launches Monday, May 17, 2021. You don’t have to sign up – just dive in! Here’s what you’ll accomplish in just one month (we’ll link to each exercise as it goes live):

Read the original article on Business Insider

Master Your Money Bootcamp: Make a list of all your debt balances

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Welcome to week two of the Master Your Money Bootcamp on demystifying your finances! This week we’re focused on managing debt balances.

Exercise 2: Figure out how much you owe, to whom, and at what price

Not all debt is bad, but it can be expensive and, at times, messy. Attention to detail is critical when it comes to getting organized.

Whether you’re carrying a balance on your credit card, paying off a new car, or chipping away at a student loan or mortgage, the best way to manage debt is head on. Being specific about the stakes of your debt – how much you owe and when it’s due – can feel daunting, but it’s key to getting out from under it.

Remember, you don’t need to be debt-free to be good with money, but you do need to be in control.

The goal for this week: To get a clear picture of all your financial liabilities. You need this information to make a plan for paying off your debt.

1. Open up a spreadsheet or get out a blank sheet of paper and write down all the financial categories where you hold debt, such as:

  • Credit cards
  • Home loans
  • Student loans
  • Auto loans
  • Personal loans

2. Go through each category and write down the bank, credit union, or another lender that falls under each one. For example, the US Department of Education might be listed under student loans, while Chase Bank might be listed under credit cards.

3. Under each lender, write down the following:

  • Your balance as of a specific date
  • Your interest rate or annual percentage rate (APR)
  • Your minimum payment
  • Your payment due date

As a reminder, here’s what you’ll accomplish in this month’s Bootcamp (we’ll link to each exercise as it goes live):

For each exercise, you’ll get a detailed explanation of how to complete it and why it’s important. Use the hashtags #MasterYourMoney and #MasterYourMoneyBootcamp to share your thoughts, progress, and connect with others across our Twitter, Facebook, LinkedIn, and Instagram as you make your way through each exercise, then join us for the live events.

Read the original article on Business Insider

The Master Your Money Bootcamp will help you take control of your finances, no matter how messy they are

demystify your finances 2x1

Ask just about any personal finance expert how to start taking control of your money and they’ll give you the same advice: Figure out where your money goes.

It’s a lot harder than it sounds.

Have you ever left a bill unopened, to deal with it later? Are you 100% sure which subscriptions are charging you every month? Which of your debts has the highest interest rate? Quick, off the top of your head: How much money do you have in cash savings?

Chances are, you can’t answer some of these questions without a good deal of password-finding, terms-reading, and note-taking. And that’s normal! But being aware of your money (all of it) is a crucial step on the path to building long-term wealth.

Welcome to the Master Your Money Bootcamp

Master Your Money Bootcamps are month-long challenges broken into simple one-week exercises to help you take control of your money.

Over the course of 2021, we’ll conduct four of these Bootcamps, each culminating in a free, live, virtual discussion among experts about how to make the most of the tasks you’ve already accomplished. You can take all four Bootcamps this year, or pick and choose the ones that give the guidance you need most.

For each exercise, you’ll get a detailed explanation of how to complete it and why it’s important. Use the hashtags #MasterYourMoney and #MasterYourMoneyBootcamp to share your thoughts, progress, and connect with others across our Twitter, Facebook, LinkedIn, and Instagram as you make your way through each exercise, then join us for the live events.

Our first Bootcamp exercise launches Monday, April 19, 2021. You don’t have to sign up – just dive in! Here’s what you’ll accomplish in just one month (we’ll link to each exercise as it goes live):

Read the original article on Business Insider

7 signs you’re rich, even if it doesn’t feel like it

business woman
  • “Rich” doesn’t necessarily mean owning a huge mansion or taking luxury vacations.
  • You’re wealthy if you can afford to save money every month and are on track to retire when you want to.
  • Another sign you’re wealthy is being able to make choices based on what you want, not just your financial needs.
  • Visit Personal Finance Insider’s homepage for more stories.

“Rich” is relative.

Maybe you think it means being in the top 1% of earners in some of the wealthiest cities in the US. Maybe it means being able to buy a flashy mansion or spend your life flitting from luxury vacation to luxury vacation.

But former investment banker Kristin Addis told Insider she feels richer earning about 40% of her previous six-figure salary while she travels the world. Nick and Dariece Swift, who also left their jobs to make a fraction of their former income, said they’re happier earning less. The self-made millionaire stars of “West Texas Investor’s Club” say their relationships are more valuable than the money they earn.

Ultimately, “rich” can be just as subjective as “happy” – it’s different for everyone. However, there are a few universal indications of wealth, no matter how you view it.

1. You can save money

“Most people fail to realize that in life, it’s not how much money you make. It’s how much money you keep,” writes Robert Kiyosaki in “Rich Dad Poor Dad.”

At the end of the day, money does not solve financial problems – in fact, it often exacerbates them. Consider the lottery winners who lost it all within a few years, or the professional athletes who made millions in their 20s and wound up broke.

“Money often makes obvious our tragic human flaws, putting a spotlight on what we don’t know,” says Kiyosaki. “That is why, all too often, a person who comes into a sudden windfall of cash – let’s say an inheritance, a pay raise, or lottery winnings – soon returns to the same financial mess, if not worse, than the mess they were in before.” 

If you can hold on to a portion of the money you earn, you’re in good shape.

2. You can live comfortably below your means

Living below your means is one of the major tenets of responsible money management: spending less than you earn, however much that may be.

Self-made billionaire Anthony Hsieh told Insider that learning to live within his means was a lesson he learned from his parents, who immigrated to the US from Taiwan.

The habit “has helped me quite a bit and that’s one of the reasons I’ve survived and flourished in consumer lending for 30 years,” he said. “My career spans four different economic and housing cycles and I’m still sitting at the table as a key executive in consumer lending. I think part of that is my discipline of making certain that the company and myself don’t overspend.”

Living within your means might not sound like a big deal if you’re already doing it, but not everyone can manage. A 2019 report released by GOBankingRates found that a third of Americans surveyed are living paycheck to paycheck.

3. You will eventually be able to pay for the things you really want 

If you can go out and buy a yacht in cash today, most people would agree that you’re rich. However, if you can go out and buy that same yacht five years from now after setting a savings goal and socking away money on a monthly or annual basis, guess what? You’re probably still rich.

Survey after survey turns up the same dispiriting result: Americans aren’t saving all that much. The same GOBankingRates survey reported that 45% of respondents had no household savings, and an estimated 40 million households have no retirement savings whatsoever.

Which brings us to our next point …

4. You’re going to be able to afford to retire as planned

Retirement is expensive. Experts say that to live lavishly in retirement, you need to replace about 70%-80% of your current income (although that number is disputed). Even if you’ve downsized, and maybe even relocated to an area with a low cost of living, retirement is still a prolonged period of supporting yourself on little or no income. 

Traditionally, “retirement age” is 65, but that’s changing as more Americans find they’re unable to float 20-plus years of living without a paycheck. Data from a 2019 Bureau of Labor Statistics report found that nearly 20% of Americans age 65 and older are still working.

If you can afford to retire when you want to, it’s a luxury.

5. You aren’t motivated purely by money

One common thread you’ll find among self-made millionaires and those who study them is that “rich people” tend to focus on something other than the dollar signs: They’re solving a problem, or following a passion, or striving to build their business as much as possible.

That, right there, is a luxury. If you can’t make ends meet, you can bet you’ll be focusing on the dollar signs over the intellectual fulfillment of your job.

This doesn’t mean you can’t be happy to earn a sizable paycheck or you can’t be excited to watch your investments grow, but money isn’t your chief motivator or source of joy. If you have the luxury to focus on something other than the money, you’re in a good place.

6. You view money as an ally

“Most people have a dysfunctional, adversarial relationship with money,” writes self-made millionaire Steve Siebold. “After all, we are taught that money is scarce – hard to earn and harder to keep. If you want to start attracting money, stop seeing it as your enemy and think of it as one of your greatest allies.”

The reason wealthy people earn more wealth is because they’re not afraid to admit that money can solve most problems, Siebold says: “[The middle class] sees money as a never-ending necessary evil that must be endured as part of life. The world class sees money as the great liberator, and with enough of it, they are able to purchase financial peace of mind.”

If you aren’t scared of money – if you view it as an ally, and a tool that can help you achieve what you want in life – you’re ahead of the game.

7. You aren’t stuck

“What I have realized over time is that in many ways, money spells freedom,” self-made millionaire and NastyGal founder Sophia Amoruso wrote in her book, “#GIRLBOSS.” She continued:

“If you learn to control your finances, you won’t find yourself stuck in jobs, places, or relationships that you hate just because you can’t afford to go elsewhere. … Being in a good spot financially can open up so many doors. Being in a bad spot can slam them in your face.”

Kathleen Elkins contributed reporting.

Related Content Module: More Personal Finance Coverage

Read the original article on Business Insider

2 ways the pandemic can change your taxes for 2020, and how to prepare

working remotely
Remote workers might have some tax changes to note next year.

  • Tax season, when it will be time to file your 2020 taxes, is right around the corner.
  • If you donated to charity this year, you can claim a deduction worth up to $300 on your tax return.
  • Remote work became the norm in 2020, but depending on where you worked from and for long, you may have additional taxes to pay.
  • This article is a contributed piece as part of a series focused on millennial financial empowerment called Master your Money.

Your financial life may have changed a lot this year, including experiencing some “firsts” that could mean your tax situation will be different when you file your 2020 tax return next year.

However, there are still opportunities to take control of your finances, including planning around your tax refund. I want to help you to get smart about your situation now, so you know what to expect and what steps to take now so there are no surprises at tax time.

Here are two tax issues to be aware of this year:

1. Claiming the new charitable tax break

Let’s start with good news: a new tax break allows people who don’t itemize the opportunity to claim a charitable deduction for cash donations (or a cash equivalent, such as a check, credit card, money order, or mobile payment).

You’ll get to deduct up to $300 from gross and taxable income on your return, reducing the amount of taxes owed. Keep in mind, the donation must be made to a qualified charitable organization, must be a cash or cash equivalent donation, and must be made by December 31, 2020. Donations of clothing and other non-cash items don’t qualify. 

The rules for recordkeeping still apply for the donation. If you donate less than $250, you must have either a bank record such as a cancelled check or credit card statement or a receipt showing the name of the charity, date and amount of the donation. If you donate $250 or more, you need a written acknowledgment from the charity.

2. Paying income taxes while working in a different state

The pandemic closed many offices and sent people home to work. If working remotely means you don’t cross a state line you usually cross or, in some cases, don’t enter a different city, you should keep detailed records of: 

  • When you started working from home
  • If and when your employer closed your office
  • If and when your employer reopened your office and invited you back to work
  • If and when you returned to your office

Generally, cities and states that have an income tax only tax income of people who live or work in that city or state. If you are one of the millions of Americans working from home, it is possible you will owe tax only to the state where you live and work beginning from the time you started working from home. These records will help you and your tax professional determine how to allocate your earnings between multiple states and cities should that be the case.

Accurately allocating your wages in 2020 as a remote worker and ensuring the correct amount gets reported to each state and locality will result in some taxpayers receiving a refund and others owing tax. The rules for each state are different and some rules are changing during the year so tracking the state and local rules and decisions will be important if you normally work in multiple states.

Kathy Pickering is the chief tax officer at H&R Block, and a member of BI’s Money Council.

Read the original article on Business Insider

21 insights from personal finance professionals to help you make a plan for your money in 2021

millennial money plan
Investing can be right for anyone, not just the wealthy or finance-minded.

  • Over the past year, dozens of financial professionals sat down with Business Insider to discuss millennials and their money.
  • They’ve offered advice and inspiration on everything from setting goals to tackling student-loan debt to investing.
  • Here are 21 of their best insights to help you make a plan for your money.
  • This article is part of a series focused on millennial financial empowerment called Master your Money.
A comprehensive financial plan maps out all aspects of your money to chart a path to your goals.

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Start with what you want to achieve

“Let your life lead your money — that’s the first thing. What is it that you aspire to do? What do you value? What are your goals? Let’s start there. Then the money is not necessarily a second. It’s a complement; it’s a partner.”

— Preston Cherry, certified financial planner and founder of Concurrent Financial Planning

Leave some room for the unexpected

“When I see people with a financial plan, one of the things I tell them is to expect the unexpected.

“As long as you’re walking on this earth, you’re going to have an unexpected expense. I call them ‘the known unknown,’ and those are expenses that you know are going to happen, but you don’t know when.”

— Tania Brown, certified financial planner with SaverLife:

Automate your money to make progress a no-brainer

“What I like to have clients do is automate their transfers to whatever the goals are, things that they’re trying to achieve, and have those in separate accounts so that they can clearly see their progress. And it’s all just sort of set up, and it’s happening for them. So they make the decision once, and then it triggers on its own.”

— Anna N’Jie-Konte, certified financial planner and founder of Dare to Dream Financial Planning

Read more » How to make a plan for your goals, no matter how big or small

A budget might seem intimidating, but you can’t control where your money goes without one.

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A couple sits down to sort out their budget before planning anything.

Keep your goals top of mind

“The main point of financial planning is to use your money as a tool for life. As far as the budget goes, understanding what you actually want to do in your life is very important to build that plan.”

— Eric Roberge, certified financial planner and founder of Beyond Your Hammock

Find out where your money is going already

“I would say that the first step — I’m always surprised at how many people either discount this or put this off or just don’t know — is really being honest about how you’re spending your money. You have to know how much is coming in versus how much is going out on a monthly basis.

“It might sound simple, but to me that’s the very essence of what it means to start thinking about a budget. That term doesn’t have to be so scary, but if you don’t take that step back and evaluate this, you’re never going to be able to move forward.”

— Kelly Lannan, the vice president of Fidelity Investment’s Young Investors for Personal Investing

Add savings into that list

“Start tracking how much you save each year and aim to save 10% to 15% of your income as an ‘investment’ in yourself. You’ll be amazed how quickly it will add up.”

— Kristi Rodriguez, vice president of thought leadership for Nationwide Financial

Consider giving your credit cards a break

“I always suggest trying a cash diet, where maybe you take a week or a couple of weeks where you don’t use a credit card and start using cash only.

“That way we’re just a little bit more mindful about how we spend. I know we use credit cards for everything today, but this way it makes us really be more thoughtful.”

— Carrie Schwab-Pomerantz, certified financial planner and board chair and president of the Charles Schwab Foundation

Find your support system

“A budget is essential, but it can be even more powerful when you have that support system of people who share the same goals. That’s what we’ve seen to be extremely effective and powerful.”

— Sunny Israni, chartered financial analyst and founder and CEO of Clasp

Read more » Money can’t buy happiness, but how we adjust 3 financial ‘levers’ can drastically affect how we feel

Debt can feel like a heavy burden. But with a plan, you can begin to tackle it systematically.

graduation cap business school

Build a personal balance sheet

“To quote my grandmother, ‘Facts are stubborn things.’ And so I think that the mistake that many people make is embarrassment, shame, bury their head in the sand.

“The best thing that anyone with any kind of debt can do is build a personal balance sheet. It doesn’t have to be fancy. It can just be pencil to paper on a legal pad with your debts on one side, and your assets on another.

“And human capital is an asset, too. So, if you have a salary, if you have money coming in, certainly list that. But those facts are stubborn things, and you need to know exactly what you’re facing, what your payments are, and have an idea of how you’re going to approach it.”

— Alison Hutchinson, senior vice president at Brown Brothers Harriman

List every loan and its terms

“The biggest advice is to get organized around your student loans. Write them all down, and see what you have to tackle.

“It always seems like a bigger task at first than it really is. And once you get organized, you can kind of see the big picture a lot clearer, so you know who your loans are with, are they subsidized, are they unsubsidized, are they private loans, are they federal loans, and getting an understanding around that. And then just going and looking at your options.”

— Carmen Perez, personal-finance blogger at Make Real Cents

Lean on your partner

“Irrespective of whether you decide to take on your partner’s debt or not, that debt is going to affect your relationship. Because it will either limit your partner’s ability to do certain things or it’ll limit your ability as a team to be able to go out and do future things together.

“So what I recommend to couples is to tackle debt as a team, even if you’re not taking over that person’s debt, or paying, or contributing to the payment of that debt. The best part about being in a relationship is you have a partner to help you navigate all that.”

— Aditi Shekar, founder and CEO of Zeta

Check up on your credit

“Review your credit reports regularly. They provide a complete record of your debt-related financial relationships, can be used as a resource for working with your creditors on payment planning, and are a critical tool in managing your debt through difficult financial situations.

“Keeping your debts as low as possible will put you in a better financial position when the economy emerges from this crisis.”

— Rod Griffin, senior director of consumer education and advocacy at Experian

Read more » How to pay back your student-loan debt, no matter where you start or what type of loans you have

Investing can be right for anyone, not just the wealthy or finance-minded.

millennial investor

Leave your emotions out of it 

“Active investing is a skill that can be learned and developed over time. For those that do it successfully, it is not an emotional exercise. In fact, successful active investors put measures in place to protect themselves from emotional decision making. If one lacks either the will, skill, or time, passive investing is likely a better strategy.”

— Wilson Muscadin, a financial coach and founder of The Money Speakeasy

Don’t be afraid to start small

“You don’t want to be silly about how you invest and incur costs that are perhaps not necessary, but I don’t think there’s any amount that’s too small.

“I’d rather you do something than nothing, especially with a 401(k) when your employer will match whatever you put in. That’s basically a 100% guaranteed return. You don’t get a lot of free lunches, as we say in finance. That might be one of the few, and you’re giving up on an incredible opportunity if you don’t put any money away at all.”

— Scott Pedvis, financial advisor at Wells Fargo

Follow your plan and readjust when you need to

“It’s very important to stick to your game plan, to understand what you’re going to be using the money for, and really know that there are going to be points where the market is not doing so great.

“But if you have a long-term game plan that you want to stay in with a risk associated with your investment portfolio, it’s best to stay the course. And if you can’t stomach the risk the portfolio you’re in might be subject to, then reevaluate and determine whether it makes sense to scale that risk down.”

— Joseph Edmondson, certified financial planner at Equitable Advisors

Ignore the day-to-day market movements

“One of the big things you want to know is to take comfort in the context.

“You don’t want to focus on the 30 to 45 worst days we have seen in 10 years and let it make you forget about the good times that we had for 10 straight years. You want to have that context and know that long-term investors almost always win.”

— Kevin Matthews, a financial advisor and founder of Building Bread

Read more » The smart investor’s toolkit: 7 tips from personal finance professionals for building wealth through investing

Managing your money is an ongoing task, and you’re better off striving for consistency than perfection.

millennials friends celebrating

Take a long-term view

“We’re living through extraordinary times. While each of us is learning to persevere through this moment, don’t anchor your vision of the future to the current environment.”

— Sandi Bragar, certified financial planner and partner and managing director in planning, strategy, and research at Aspiriant

Identify what you can control

“What I find people do is they focus on a thing that they cannot control and ignore the things they can.

“For instance, if someone loses their job, they had no control over the job loss, but you have 100% control over calling your creditors and letting them know you may not be able to pay the bills. You have 100% control of going in your budget and cutting out unnecessary items, like cable.”

— Tania Brown

Stop comparing your situation to others

“My biggest piece of advice, and this is hard, OK, I’m not saying it’s easy: People have to stop comparing yourselves to others, especially over social media.

“You have to define your own goals, because we all know what makes us happy. You have to start to align your money to your values, to the things that make you happy. That can be at least an important first step in trying to not compare yourself too much to others.”

— Kelly Lannan

Don’t wait until tomorrow or next month to get back on track

“When you’re looking at your spending for the month, if you go over on a category and then you say, ‘OK, well, I’ll just start over next month,’ I always tell people that’s not the way to go about it.

“It’s the same with nutrition or health goals. It’s not like, ‘OK, I’ll just start over next month’ or ‘I’ll start over next year,’ but it’s ‘OK, what can I do for the rest of the day to make this better?’ Or ‘What can I do tomorrow to make this situation better?’ So maybe it’s ‘OK, if I overspent on this category, is there another category that I can cut back on for the rest of the week or month?'”

— Katie Oelker, financial coach

Aim to be good with money, not perfect

“Being good with money doesn’t mean you’re perfect with money. None of us are. I think that’s one of the things that we have to tell people to come to grips with: You will do things that you’ll look back and wonder why. But no one’s perfect with money.”

— Rod Griffin

Read more » 5 steps to take control your money — even when it feels like everything’s gone sideways

Read the original article on Business Insider

I’ve followed the ‘30% rule’ since renting my first apartment, and 5 years later I’m seeing the impact

woman moving into apartment
I committed to the ‘30% rule’ in my early 20s and have lived by it ever since (author not pictured).

  • There’s a rule of thumb that Americans should spend no more than 30% of their income on housing costs.
  • I’ve followed this rule since renting my first apartment in New York City, and stuck to it when I moved to Los Angeles and ever since.
  • I’ve had to make some concessions along the way, like living with multiple roommates and taking the “worst” bedroom for a lower price.
  • By keeping my long-term fixed housing costs to less than 30% of my take-home pay, I can be way more flexible with the rest of my budget.
  • Sign up for Personal Finance Insider’s email newsletter here »

It’s been just over five years since I went looking for my first post-college apartment in New York City.

I knew rent could be a wallet-buster in NYC, but I didn’t want to ask my parents for help even though I was earning a low hourly rate as an intern. It was time to flex my frugality muscle. 

I had some cash set aside from graduation gifts and decided part of it would go toward a security deposit and part would become my emergency fund. That meant monthly rent and utilities would come from my paychecks (as it does for most people). Rent in college was dirt cheap, so I had no idea how much I should be spending in the real world.

After some Googling, I found a rule of thumb recommended by financial experts and upheld by the US government: Aim to spend no more than 30% of your gross income on housing.

This concept was developed in the 1930s when the government began measuring housing affordability. It was originally lower, but by 1981, 30% became the standard. Americans who spend more than 30% of their pretax income on housing costs, including insurance and property taxes, are considered “burdened.” The calculation is based on the cost of other goods and services, like groceries, healthcare, and education.

Mortgage lenders can be even stricter – many don’t like to see a potential homeowner spend more than 28% of their income on housing.

I did some back-of-the-envelope math using my take-home pay instead of my gross income because I wanted to account for taxes. The 30% benchmark seemed to fit well with the rest of my budget. I’d have enough to cover my other expenses, like food, transportation, and some entertainment, plus stash a little bit in savings.

Right then I committed to the 30% rule, and I’ve lived by it ever since. 

How I followed the 30% rule in expensive cities

Apartment hunting sounds fun in theory. In practice it can be tedious and frustrating, especially if you’re on a strict budget. But a good enough apartment always crops up eventually, even if it doesn’t tick every box on your wish list. 

After about a year and a half living in New York, I moved to Los Angeles. I jumped from one increasingly expensive city to another.

To stick to the 30% rule, I had to make some concessions. In both places I lived with at least two other roommates and always took the worst room, which translated to the cheapest rent. In New York City, that meant a windowless bedroom in a railroad-style apartment in one of the outer boroughs. In my first apartment in Los Angeles, I took the most inconvenient parking spot and the only bedroom without an en suite bathroom (this is nothing to complain about, I know).

Rent isn’t the only housing expense, though. Internet has typically cost an extra $30 or so each month, but water and power can be more unpredictable. These costs are hard to control when you’re living with roommates, since you can’t police their energy usage or shower time. In fact, I’ve had minor crises in the past – a $500-plus electric bill just about floored me.

In these cases, I tapped my emergency fund to pick up the slack, which I’m convinced I have been able to maintain precisely because I’ve been so strict about keeping my fixed housing costs low.

Keeping my housing costs low has opened up room for savings

Each time I’ve moved apartments – a total of three times since that first New York City apartment – I’ve been at a higher income level. I do a new calculation every time to see what 30% of my post-tax income is, and won’t sign a lease unless what I’m agreeing to pay is below that amount.

Housing is not a very liquid expenditure. You can’t cut back on a dime because most leasing agreements last around 12 months. But you can quickly cut back how much you spend on shopping or lunch. I realized how important it is to be mindful of how much I spend on housing, since it’s usually a long-term commitment.

By controlling my housing costs, I’m able to be way more flexible with the rest of my budget. It’s worth noting that I didn’t have student loans to repay and have always avoided credit-card debt, so my expenses outside of housing were already pretty flexible.

As my income has gone up, I’ve put the money toward other categories of my budget, like upgrading my gym membership, traveling more comfortably and conveniently, and saving more money

I’m particularly focused on funneling as much money as I can into my 401(k) so that it has decades to grow before I retire. I also want to make sure I’m prepared for unexpected costs that arise now. Instead of moving into a nicer apartment in a nicer neighborhood each time I get a pay raise – therefore eating up my newfound cash with housing costs – I bump up my 401(k) deferral rate and add to my emergency fund.

The 30% rule won’t work for everyone

Like any other personal-finance rule of thumb, the 30% rule is more of a guideline than a mandate. You might have less choice than I did about exactly which city or neighborhood you live in and how many roommates you have, or you might prefer to spend more budget on your house and less on food and travel. 

For me, the 30% rule provided a good foundation for crafting a spending plan. Keeping my fixed, long-term costs low means I can be nimble with everything else.

Tanza Loudenback, CFP®, is the personal-finance correspondent at Business Insider. She writes most frequently about saving money, planning for retirement, taxes, debt management, and strategies for building wealth. Have a money question for Tanza? Fill out this anonymous form

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