How I budget, save, & invest my money *super detailed*

Summary

In this video, Rose shares her personal journey of managing money, covering budgeting, saving, and investing. She breaks down her budgeting system into categories like fixed expenses, variable expenses, and wealth-building goals. Rose emphasizes using tools like YNAB to stay on track and avoid debt. She also discusses the importance of building an emergency fund, long-term investing strategies, and how she prioritizes savings for personal splurges responsibly. Throughout, Rose offers practical tips and insights, making personal finance relatable and accessible for viewers looking to improve their financial habits.

Takeaways

• 💰 Budgeting is essential for staying out of debt, saving, and achieving financial goals.
• 📝 The user reframes budgeting as something that allows them to say 'yes' to goals like vacations, home purchases, and debt-free living.
• 📱 The budgeting tool of choice is YNAB, but any method like spreadsheets can be used to organize finances.
• 📊 Budgeting categories are divided into fixed expenses, variable needs, variable wants, wealth-building, and treat-yourself categories.
• 💸 Saving is crucial, with an emergency fund of at least three months of living expenses being the first priority.
• 🏦 The user utilizes a separate high-yield savings account to keep their savings out of sight and mind, helping to prevent impulse spending.
• 👜 The user sets specific savings goals for big-ticket items, like a $3,000 Prada handbag, to avoid sacrificing other important financial goals.
• 📈 Investing is critical to making money work for you, with a focus on long-term growth through index funds, Roth IRAs, HSAs, and 401k accounts.
• 🏘️ The user also invests in real estate through REITs and rental properties, generating passive income.
• 💡 The importance of tax-advantaged accounts like Roth IRAs and HSAs is emphasized, helping to reduce taxes and maximize long-term returns.

Q & A

Why does Rose emphasize budgeting, and how does she view it differently from common perceptions?

Rose views budgeting as a tool to say 'yes' to important financial goals, like being debt-free or taking vacations, rather than seeing it as a restriction. She reframe it from a perspective of deprivation to one of empowerment, helping her achieve her long-term financial goals.

What app does Rose use for budgeting, and why does she recommend it?

Rose uses YNAB (You Need a Budget) for budgeting. She recommends it because it helps her assign every dollar a job, ensuring she spends money intentionally. She appreciates that it links to her bank accounts and categorizes transactions in real-time, helping her stay on top of her spending.

How does Rose categorize her budget and what are her broad spending categories?

Rose organizes her budget into six broad categories: fixed expenses (e.g., health insurance, property taxes), variable needs (e.g., groceries, utilities), variable wants (e.g., restaurants, shopping), the 'add a zero' category for wealth building (e.g., retirement accounts), and the 'treat yourself' category for splurge items.

How does Rose handle irregular income as a self-employed individual?

Rose assigns every dollar a job whenever she gets paid, starting with necessities like rent and insurance premiums. If she has enough income, she also assigns funds to her wants and savings goals. She carefully manages her irregular income by prioritizing essential expenses first.

What is Rose’s first savings goal and why is it important?

Rose's first savings goal was to build an emergency fund covering three months of living expenses. She emphasizes the importance of this because it provides financial security in case of unexpected situations, like losing her income. She keeps this fund in a high-yield savings account.

How does Rose ensure she saves consistently, and what psychological trick does she use?

Rose automates her savings by setting up automatic transfers from her checking to her savings account. She uses the 'out of sight, out of mind' strategy, keeping her savings in a separate account so she doesn’t see the money and therefore isn’t tempted to spend it.

What are Rose’s investment priorities, and how does she approach long-term investing?

Rose prioritizes long-term investments by contributing to tax-advantaged accounts like her Roth IRA, HSA, and solo 401(k). She mainly invests in index funds, which are diversified baskets of stocks representing the overall economy, allowing her to benefit from long-term market growth without frequent buying and selling.

What is the significance of a Roth IRA according to Rose, and what are its benefits?

A Roth IRA is important to Rose because any investment gains inside the account are tax-free, and withdrawals in retirement are also tax-free. This allows her to grow her money without worrying about future tax liabilities, making it a powerful retirement savings vehicle.

How does Rose handle impulse purchases, and how does budgeting help with this?

Rose prevents impulse purchases by budgeting for splurges in her 'treat yourself' category. Instead of buying items like a designer handbag on a whim, she allocates funds toward the purchase over time, ensuring that it doesn’t derail her other financial goals.

Why does Rose prefer to invest in REITs within her solo 401(k) account?

Rose invests in REITs (Real Estate Investment Trusts) in her solo 401(k) because REITs pay high dividends that are not tax-efficient. By holding them in her 401(k), she shelters the dividends from taxes, allowing her to grow her investments without paying taxes on the income.