When I started my entrepreneurial journey, I began to ignore my personal finances. I was so selfish about my business baby that I didn't handle much within my own household.
Mostly because of comfort. Upon inception of my business, I was as a foster mom to special needs adults making pretty good money. It was 2016 and I stopped writing for the personal blog I created a year prior. I quit this blog because I felt like the digital space needed someone to help them with business finance.
I started my bookkeeping business with low startup costs. After a while, I started to drink all the Kool Aid from the cool kids. I invested in the latest course. Signed up for every sexy software subscription. Since I didn't yet master my client experience, I wasn't making consistent income. Most of these funds were borrowed from my personal finances. It became awful.
Through this, I stacked up a pretty expensive first year of business.
I vowed to avoid this in my second year of business. I also committed to keeping myself as accountable as I do my bookkeeping clients!
No more risking their personal finances for their business. There's so much empowerment from having detailed and consistent cash flow management processes.
Though I'm changing habits, I'm paying for some ill choices. During these past couple of months, life changed for me drastically.
I officially became a co-parenting mom and semi-struggling solopreneur. Not to mention struggling to avoid spiraling into depression.
But still, every day I think of what little way can I improve my life or, my financial situation.
That way is to find a way to making simple strides each day. First, starting with ending the pity party I throw for myself every week.
I quickly decided to get back to basics and into things that have worked in the past.
I did a survey a few months ago asking entrepreneurs what did they struggle was. So many told me they struggled with their personal finances.
When you want to tell your money what to do, it's even more difficult to do so with your personal finances. I went back to something that worked so well for me without all the emotion attached - the 50/20/30 Budget Plan
My experience with the 50/20/30 Budget Plan.
I first learned about this plan when I was a blogger through Learnvest a little over two years ago. Ecstatic with a new way to tell my money what to do, I began to implement it. I fine-tuned it to the different seasons of my life.
When my business baby got in the way, I began to ignore it. As things in my personal life came crashing down, I understood how to put them back together again. When I started over again from scratch, there was no guessing on how to spend my money and I knew where to cut expenses or renegotiate bills.
Most importantly, this budget plan lets me know how much money my business must make to afford the lifestyle of my dreams!
It showed me a way to create a budget that did everything in your life, by having household expenses taken care of, tackling debt & savings, as well as thriving with personal expenses.
I will share the basics on what the Budget Plan is and how I use it in my life.
The 50% - Fixed Household Expenses
This first tier is the veins of your home-base headquarters. It’s how your family sustains itself every single month. With that being said, it’s the most important and expensive part of your budget.
Even though it’s the most expensive, you should always consider if the lifestyle that you live is above your wage. The budget plan recommends that your fixed expenses shouldn’t be more than 50% of your take-home pay.
If you’re not a business owner or still have your full-time gig - it’s your pay after taxes.
If you’re an entrepreneur, it gets a little tricky.
I like to reverse engineer the way I handle my cash flow in my business by following Profit First. I ensure that I pay myself throughout the month instead of taking the profits from the business at the end of the month - hence profiting first! (I will go in more detail about this in a later post!)
So when you decide how much you’d like to pay yourself in your business - 50% of that should go to your fixed household expenses.
To give myself a deeper guideline on ensuring I’m not house-poor, I try to recommend make sure my rent is no more than 25-30% of my income and fit the remaining 50% for:
- Utility bills
- Cell Phone Bill
- Car Note
- Insurance (car, health, and life
- And other important fixed costs
I recommend this to clients, friends, family, and generally anyone who will listen. Once you take out the emotion in a lot of decisions that are meant to be logical, it’s so much easier!
So now that I may have your wheels spinning. Take a sec and write down your fixed expenses. Did you find that the expenses in this tier is more than 50%?
Ideas to improve:
- Increase income
- Cut the expense you don’t need completely (I haven’t had cable for more than a year.)
- Negotiate lower rates (i.e. car insurance and phone bill)
The 20% - Savings and Debt Payments
This section is in two parts but can fluctuate depending on your life situation.
If you’re starting from scratch, I suggest you read Dave Ramsey’s book Total Money Makeover. In this book he gives SOLID advice on how to create a plan to knock out debt.
Since I recently hit close to rock bottom in my personal life, I found myself starting from scratch as well.
In this section, I’m considering putting more towards an emergency saving. The debt payments are at a minimum at the moment right up until I reach a number I’m comfortable with in my emergency fund.
So much debate around the ideal number for an emergency fund.
3-6 months of expenses ideal but $1000 is so much more attainable in the short-term. Again, Dave Ramsey talks more about this in his book!
Quick tip on how to accelerate this as an entrepreneur:
Give new retainer clients a 90-day grace period before implementing them in your official business budget. Use the half the income to pay yourself as the owner as your “bonus”. Use said bonus to boost savings or pay off a credit card! Amazing tip I got from an entrepreneur friend, Narsha!
The 30% - Lifestyle of Flexible Spending
So, the last tier of this budget plan is what I like to call my “thrive list”.
- Personal Spending
- Charitable donations
This is the section where you will make room for your FentyBeauty products. Or, if you’re like me, where you spend on your Walmart Grocery app so you don’t have to actually go shopping in the grocery store.
This section of the budget is by far the most confusing because it’s where we are the most impulsive. We usually end up starting our budget from scratch again in the middle the month because we went over or ignored.
How to get trick yourself to be more responsible in this section of your budget:
- Open another account for personal spending and only put in what you can afford!
- Consider a prepaid card - especially great for vacations
- Just be old school and get the exact amount in cash
- Lay out your bills from the beginning to the end of the month. Are most of your bills in the first or second half? Whichever has the least, consider that specific time to spend on self-care
These Percentages Don't Have to Be Set in Stone!
The reason the 50/20/30 Budget Plan is a “plan” is that it’s a framework. It can change over time and you can adjust it for the season of your life.
If you’re living with a roommate or family member, your home expenses may be less than 50% Maybe even 20%. If you’re in this life season, take advantage of changing your saving and debt to 50%.
For me, I’m doing my percentages as 50/30/20. I’m sacrificing personal spending in the short-term to quickly get my emergency savings in a comfortable place. Then once I reached my short-term goal, I will reassess.