During the last blog titled: "I just got paid, but I am already broke" https://www.financialhealingforwomen.com/post/i-just-got-paid-and-i-m-already-broke
I detailed a few ways you know you may be living above your means. In another previous blog https://www.financialhealingforwomen.com/post/budgetlikeaboss , I also shared with you all a few keys of what budgeting is, why you need one, and how to create one. But understanding the budget ratios in which you should live within your means is the ultimate game-changer for you to create financial stability and decrease unnecessary spending.
Plenty of people seem stuck in a cycle of subconsciously ignoring the signs of decisions that lead to a life of lack. Because of this, we rarely stop to ask themselves. What is wrong with this story? How can I put myself in a better position?, or How can I end this? If this is your story, it is okay, start asking questions now and shift gears immediately. You may also be asking, " Janee, How do I know that I am living above my means?" The answer is simple! Your actual monthly expenses are outside of the targeted percentage ratio, depending on how much income you received that month.
There are tons of different ideas of what budget ratios you should follow, but this is the way I prefer to budget. Here are the key categories in which you should have within your budget and list the percentage ratios you should stay with-in when completing your budget;
Family Obligations 6-16% (Daycare, child support, etc.)
Transportation 6-15% (Auto payments, gas, auto insurance)
Health expenses (If not included in your paycheck)
Debt Payments 5-10%
Step 1: Write all of your expenses down on paper or insert in an excel file
How much are you paying for rent?
How much are you paying for utilities, food, transportation, car payments, etc?
Step 2: Write down the income you received for that month.
Step 3: Calculate the ratio of each category.
Example: Housing Category (Mortgage) $850 Divided by Income $4,000 would mean that 21% of your income is going toward housing = Congrats! You are within the expected ratio!
After coaching sessions, clients are generally stunned at how out of whack their finances were. The first time I completed a budget with ratios, I felt the same way! When I started budgeting, seeing how much I was paying out and comparing them to where I needed to be was incredibly eye-opening, also a bit shameful, but it changed everything for me. Understanding budget ratios helped me to downsize my life and most importantly pay off over $20,000 in debt! If you are having issues, and you feel like I just got paid, and you are unaware of where the money went, the chances are that you are overspending in a particular category. You have to figure out what that area is and how you can decrease those expenses so that you can start winning in your finances.
If you would like a copy of a mock budget with ratios included, send us an email at firstname.lastname@example.org. Until next time!