Remember the days before Netflix, Hulu, or Youtube? I would run home to watch an episode of my favorite novela, Rebelde (the original, not the reboot). As an adult, I have so many options of where I can re-watch my childhood shows and those subscriptions can cost a pretty penny. After figuring out my relationship with money (an ongoing analysis) and tweaking my budget, I adopted a system that helps me distribute my paycheck in a way that calms my anxiety and reduces my guilt when I spend on “fun things.” This method of budgeting is called pay yourself first, which simply means you focus first on your savings and then on expenses.
The paying yourself first budget may seem like a no brainer, but it took me time to embrace it. I felt as though I was being Rebelde (Rebellious) for managing my money in a different way from what I was taught or how others were doing it. Personal finance is personal for a reason. What works for me may not work for you or anybody else – so take this with a grain of salt.
“Y Soy Rebelde” Budget
- My paycheck is distributed into two different accounts: a checking account and a high yield savings account.
- In my high yield savings account, I split the money between my emergency fund and my wedding sinking fund.
- An emergency fund consist of money that I will only use in cases of emergency (e.g. job loss, car repairs, unplanned home expenses). It is recommended that you have at least 3-6 months worth of your expenses. When I started my emergency fund, my goal was to always have at least $1,000. You do you.
- A sinking fund is an account that holds the money you are saving overtime for a specific expense. For the last year, I have been slowly saving money to cover wedding costs.
- A 403B is an employer sponsored retirement account. In other words, your work is the only one that can offer this to you. Currently, 7% of my paycheck is automatically sent to my retirement account. In addition to saving for my retirement (automatically investing in the stock market), I will not be taxed on that 7% of my paycheck (YAH for reducing my taxes). You are taxed on this money when you reach retirement.
- A ROTH IRA is an individual retirement account that you can open with earned income from a job. After the money hits my checking account, I transfer some into my ROTH account and invest it in the stock market. Since all the taxes have been pulled from my paycheck, the money going into my ROTH is post tax. This is wonderful because the money being invested will not be taxed and it will not be taxed when you pull that money out at retirement.
- A portion of my paycheck also goes into a Health Savings Account (HSA). HSAs have multiple benefits such as contributing pre-tax money (no taxes on that money now), you are not taxed on the money you use to pay for qualifying health expenses, and the money that grows in your account (though investing or interest earned) are not subject to taxes.
- Of course, I allocate money to pay the basic necessities (bills, rent, groceries) and debts.
- The rest of the money is used for things I want and do not necessarily need. By having a limited amount of money, I am forced to reflect on my values, budget, and spent my money on things I truly enjoy.
I am constantly evaluating my Rebelde system and modifying it based on my financial needs. I encourage you to continuing exploring different budgeting methods and find one that works for you.