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.

Outlines

00:00

Introduction and Personal Motivation

05:01

Budgeting Mindset and System

10:02

Tracking Spending and Budget Adjustments

15:02

Saving and Emergency Fund Strategy

20:04

Investing for the Long Term

Types of Investments and Dividend Portfolio

Encouragement and Video Series Proposal

Keywords

💡Budgeting

Budgeting is the practice of creating a plan for how to allocate money. In the video, the speaker emphasizes that budgeting helps her stay out of debt and manage her finances by giving each dollar a specific purpose. Budgeting also helps her plan for expenses and save for larger goals, reframing it from a negative concept to a tool for achieving financial freedom.

💡YNAB

YNAB (You Need A Budget) is an app that the speaker uses to organize and track her finances. It allows her to categorize her spending and keep tabs on her budget in real-time by linking her transactions. This app helps her assign jobs to every dollar she earns, ensuring she stays on track with her financial goals, even when her income fluctuates.

💡Emergency fund

An emergency fund is a savings account set aside for unexpected financial crises. In the video, the speaker mentions saving up at least three months' worth of living expenses in a high-yield online savings account to provide security in case of income loss or unexpected expenses. This was her first savings goal when she started managing her finances.

💡Investing

Investing involves putting money into assets like stocks, bonds, or real estate to generate returns. The speaker highlights the importance of investing for long-term financial growth, explaining how it can help individuals stop working for money and let money work for them. She shares her own investment strategies, such as contributing to retirement accounts and investing in index funds.

💡Roth IRA

A Roth IRA is a type of retirement account where contributions grow tax-free, and withdrawals during retirement are also tax-free. The speaker stresses the significance of this account, explaining that she contributes the maximum allowed annually through a backdoor Roth IRA, which provides significant tax benefits on her investments.

💡HSA (Health Savings Account)

An HSA, or Health Savings Account, allows individuals to save pre-tax money for medical expenses. The speaker explains that she invests money in her HSA to benefit from tax deductions, tax-free growth, and tax-free withdrawals for qualified medical expenses, making it a highly tax-efficient investment vehicle.

💡Index funds

Index funds are a type of investment that pools money to buy a diversified set of stocks, representing a broad market segment. In the video, the speaker mentions investing in index funds in her retirement accounts, as they offer a simple, long-term strategy for growing wealth by passively tracking the performance of entire markets.

💡REITs (Real Estate Investment Trusts)

REITs are companies that own or finance income-producing real estate. The speaker mentions investing in REITs through her solo 401(k) because they pay high dividends, offering exposure to real estate investments without the need for large amounts of capital. She also highlights the tax advantages of holding REITs in tax-sheltered accounts.

💡Treat yourself category

The 'treat yourself' category is a part of the speaker's budgeting system where she saves money for personal splurges, such as luxury items or indulgences. In the video, she talks about saving for a $3,000 Prada handbag in this category, ensuring that she can make the purchase responsibly without jeopardizing other financial goals.

💡Irregular income

Irregular income refers to earnings that fluctuate from month to month, which is common for self-employed individuals like the speaker. In the video, she discusses how her income varies, but through careful budgeting and assigning every dollar a job, she ensures that her financial goals remain on track regardless of these fluctuations.

Highlights

Introduction by Rose explaining her journey with money management and why she decided to share her financial tips.

Budgeting misconception: Initially viewed budgeting as a form of deprivation, but later reframed it as a tool to say 'yes' to financial freedom and desired goals.

Broad budgeting categories: Rose organizes her budget into six main categories—fixed expenses, variable expenses (needs), variable expenses (wants), wealth-building, and 'treat yourself' for splurge items.

Budgeting method: Rose uses the app YNAB (You Need A Budget) to assign every dollar a job and track her expenses in real-time.

Adjustments during the month: Rose doesn't follow her budget strictly but adjusts based on her spending. If she overspends in one category, she reallocates funds from another.

Avoiding credit card debt: YNAB helps Rose stay out of credit card debt by only allowing her to allocate money that she already has, rather than spending future or credit card funds.

Savings goals: Rose's first major savings goal was to create a 3-month emergency fund, which she keeps in a high-yield savings account.

Out of sight, out of mind: To help save, Rose regularly transfers money into a separate savings account to avoid the temptation of spending it.

Treat yourself category: Rose shares her current savings goal of buying a Prada handbag responsibly, by setting aside money without impacting other priorities.

Importance of investing: Rose emphasizes the significance of investing to make money work for you, so you don't have to work for money forever.

Types of investment accounts: Rose has a Roth IRA, an HSA (Health Savings Account), a Solo 401k, and a taxable brokerage account, each with its own tax benefits.

Investment strategy: Rose invests in index funds for the long term, which represent slices of the overall economy, in her Roth IRA and HSA.

REITs in her Solo 401k: Rose holds Real Estate Investment Trusts (REITs) in her Solo 401k to benefit from real estate dividends while avoiding higher taxes.

Dividend portfolio: In her taxable brokerage account, Rose holds ETFs focused on high-dividend stocks for additional passive income.

Real estate investments: Rose owns three rental properties in Las Vegas, which generate about $3,000 to $4,000 in cash profit monthly.

Transcripts

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foreign

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I'm Rose welcome to my channel now one

of the reasons that I used to struggle

so much with money in the past is

because no one ever actually sat down

with me to talk to me about it to show

me how to stay out of debt save invest

and just overall be good with money and

that's why I wanted to do this video you

can think of me kind of as your best

friend or your big sister just sitting

down to show you all my stuff just so

you can get some tips for how to better

manage your finances and also see that

I'm not perfect either I definitely

overspend on things more than I would

like but still I overall I have a pretty

good system for managing my money I'm

gonna be spilling all the tea on how I

save budget and invest my money so we

can start learning from each other okay

first let's talk about how I budget now

yes I do budget I started budgeting when

I got really serious about wanting to

get out of debt and even once I was out

of debt I sort of slipped back into not

budgeting and that's when I realized

well if I don't continue budgeting I

might very easily fall back into debt

and that's why even to this day as much

as I want to put it off I always make

myself sit down check my budget and make

sure I'm on track in the beginning I

sort of had this relationship with

budgeting like it's gonna tell me what I

can't spend money on it feels like

deprivation like no you can't go out to

eat with your friends no you can't buy

that new handbag like no no no no no but

I've actually been able to reframe

budgeting in my mind as something that

tells me yes yes you can be debt free

yes you can buy that house yes you can

go on that vacation and yes you can do

all this without being stressed about

where the money is going to come to pay

for this because you budgeted for it so

that's something that's really helped me

is I've really like reframed it as

something that helps me say yes to all

the things that I want to do in my life

so in terms of how I do it I use an app

called YNAB you don't have to use an app

some people use spreadsheets I

personally love YNAB I'll link to it

below in the description of this video

so you can get a free month to try it

out so the way I organize my budget I

first break everything out into six very

very broad categories and then within

each category I break it down further

into more specific line items and so my

broad categories here are one fixed

expenses so that's where I have stuff

like my health insurance property taxes

pet insurance car insurance life

insurance home insurance bills that

always going to be the fixed amount

every single month no matter what and

then the next broad category I have are

variable expenses that are needs this is

also stuff that our needs but the amount

every month could vary so groceries

utilities gas pet food medical and

dental visits toiletries Home

Maintenance and stuff like that and then

I also have another broad category

called variable expenses once this is

where I put stuff like restaurants and

coffee shopping spoiling my dog yes I

have a line item in there for that

beauty like Spa visits Nails Wellness

like massages facials home decor Hobbies

gifts and other sort of variable ones

and then I have two other super

important broad categories one is called

the add a zero category I just like to

call it out of zero because it's like

adding a zero to my net worth but I

think of this as my wealth building

category this is where I try to budget

for things like my retirement accounts

and other types of investing goals that

I have and then my very favorite

category is the treat yourself category

and here if there's any sort of splurge

items that I really want to like treat

myself with I put that in my budget so I

can start saving for it and eventually

have the money to pay for it okay so

then what I do next is now I've got all

these categories and the next thing that

I do is every time that I get paid like

every time and I'm self-employed so I

have a very irregular income but every

time money comes into my account that

goes to this sort of ready to assign

area and then from there I'll start

giving every dollar a job and obviously

first I'm going to assign to the

Necessities like rent or insurance

premiums like stuff that is going to

come out of my account and I need to

have money for it I'm going to fund

those first and ideally in a good month

I have enough money coming in that I can

assign enough dollars to every single

line item in my budget that would be all

my needs necessities and my wants and my

goals the idea really is every time you

get some money you give every dollar a

job you basically tell your money where

you want it to go before you just spend

it on some random impulse purchase that

you really didn't plan for so it's

really nice to have this sort of bird's

eye view of what are all the things that

require money in your life and then when

you get paid you get to decide it

doesn't even matter how much money you

have or don't have of even if you make a

very low income you still feel very in

control of your money because when the

money comes in you get to tell it where

you want it to go and it feels really

good to have a plan rather than just

buying things here and there and just

hoping for the best and then in terms of

how I spend throughout the month and

stay on track actually most of the time

I do not follow my budget to a t there's

always adjustments that need to be made

so basically every time any sort of

transaction happens on one of my cards

or on my accounts it's linked to my YNAB

app so the transactions come through in

real time and then I categorize them as

they come in so for example if I go to a

restaurant and I spend fifty dollars on

dinner that's gonna come into YNAB I'll

categorize it as a restaurant expense 50

and why not will take fifty dollars out

of the amount of money I've allotted for

restaurants that month and then if for

example by the end of the month I have

no money left for restaurants because

I've already gone out a lot that month

but I still want to go out to this like

one last brunch that my friend invited

me to then what I could do is I could

adjust so for example brunch is gonna

cost thirty dollars then what I would do

is I would move 30 from a different

category say my shopping category or

take 30 out of my grocery category and

just be a little more frugal with

groceries for the rest of that month or

just take it even out of my retirement

investing category for example like the

point is if you're gonna spend 30 that

you didn't plan on spending that money

has to come from somewhere right it's

gonna either come from a different

spending category you'll just cut back

on there or it's going to come out of

what could have gone into your

retirement savings something else that I

really love about budgeting and

especially YNAB in particular is it

really helps you get out of credit card

debt and stay out of credit card debt

because the thing with YNAB is whenever

you assign every dollar a job you you

can only assign money that you already

have in your account you can't assign

money that is coming in the future that

you think is coming and you can't assign

like credit limits it basically forces

you to spend money that you have and if

it's money that you don't have then

it'll be clear that you're spending

money that you don't have because it's

going on a credit card and you haven't

budgeted for it and it will sort of make

a little red flag for you so I really

love that it keeps you accountable it

keeps you in touch with your real

finances with your real life budget with

money that you really have because I

find that if I don't do this I'll

totally lose touch with reality and just

swipe my credit card left and right and

at the end of the month I'll be shocked

at where all the money went versus if I

have something like YNAB I'm

categorizing my transactions every

couple of days and seeing what budget

line items I'm spending in the most and

you know what's going on with my money

okay so now let's talk about saving well

first of all my very very first savings

goal ever was to save up an emergency

fund so if you're new to this whole

personal finance stuff that would be the

place to start

so I set a very ambitious goal to save

up a bare minimum three months of living

expenses and to just put that into a

high-yield online only savings account

that is separate from my checking

account so I almost like don't even

remember that it exists so I have ten

thousand dollars set aside in a Capital

One 360 savings account it pays over

four percent interest last time I

checked so it has a good interest rate

too and I know that that money is there

if I ever really needed it if all this

hits the fan and I lose all my

income I'll have this emergency fund to

keep me afloat for at least three months

so that feels really good to have it

makes you feel very secure you know it

gives you choices because you know that

you're not living completely paycheck to

paycheck so definitely an emergency fund

should be your first savings goal that

was definitely mine and now that I've

got that taken care of I have other

savings goals one little tip for saving

and this is something I do religiously

is whenever I want to save any money I

transfer it out of my checking account

where all my daily activity happens and

I put it in a separate savings account

out of sight out of mind and if you can

I highly recommend doing like an

automatic transfer from your checking

account to this separate savings account

every single month maybe it's 500 a

month 100 a month a thousand dollars a

month whatever you can handle then a

couple months later you're gonna check

your savings account and see that has

thousands of dollars in it and you'll be

like wow I totally forgot that was

happening because if the money is there

and you see it you're going to spend it

so that's one little way that I like

hack my own psychology is I put money

away into savings accounts that I don't

see so that I almost feel kind of poor

but really in the back of my mind I know

like those savings are really stacking

up something else that I'm saving for is

in the treat yourself category lately I

have been really eyeing this handbag

that I would love to buy I never thought

of myself as someone who would want

designer handbags but there's this one

bag from Prada that is really nice and

very classic I feel like it would go

with so many things that I wear and I

would wear it like almost every day and

it is about three thousand dollars so

this is how I'm being responsible I want

to buy the bag but I also don't want to

do it at the expense of other more

important goals like my retirement

investing or even like other necessities

that I need to pay for soon so I have

that line item in my budget and I know

that it's something I want to save far

but I'm going to prioritize once I have

enough money to fund all my other goals

and necessities and wants then I will

put money into that Prada handbag

category but really the idea is you save

up for something when you want it rather

than just impulse buying it like I could

easily go on prada.com and buy it on my

credit card right now and maybe I'd be

able to pay off my credit card that

month but it would probably be at the

expense of other important Financial

priorities that I had so this is where

budgeting really kind of keeps that

impulse urge in check and makes you be a

little more responsible for things that

you want to buy in a couple months when

I actually go buy that product bag it's

because I will have enough money in my

budget allocated for it and it's gonna

feel so good and probably enjoy my

purchase even more because I know that I

didn't buy it at the expense of other

things that are important to me

all right now let's talk about investing

investing is so so so important because

if you never learned how to make money

work for you which is what investing is

then you will have to work for money for

the rest of your life and who wants to

do that so I am going to tell you about

what investment accounts I have and what

investments I hold in each account and

why so first I have a Roth IRA Roth IRA

is something everyone should have and if

you make too much money to contribute to

a Roth IRA because there is an income

limit you can do what's called a

backdoor Roth IRA I'll link to some

videos about that below this video but

basically every single year I contribute

sixty five hundred dollars to My

Backdoor Roth IRA

and this account is great because

whatever money you make from the

Investments you hold inside of a Roth

IRA are completely tax-free and then

later on even if your five thousand

dollar contribution has grown to I don't

know a million I'm just exaggerating

here you can withdraw all one million

dollars of that out of your Roth IRA

completely tax-free and this is amazing

because usually when you make money with

Investments you have to pay a good

amount of taxes on them so a Roth I

raised an account that I absolutely love

and prioritize the other type of account

I have is what you call an HSA or a

health savings account annually you can

contribute up to three thousand eight

hundred fifty dollars into this account

every single year as of 2023 and

whatever money you contribute to this

account is pre-tax meaning it's a tax

deduction right off the top of your

income and then all the growth and all

the gains just like in the Roth IRA are

also tax-free and then withdrawals if

they are for health related expenses are

also tax-free so it's like a Triple Tax

loophole so the health savings account

is an amazing account to hold your

investments in the third type of

investment account I have is a solo 401K

now I'm self-employed I'm an

entrepreneur so I have a 401k under my

business and that's what you call a solo

401K however if you work for an employer

your employer may have provided you with

a 401k as well so basically the three

types of accounts that I just talked

about

Roth IRA HSA and 401K are retirement

accounts that are tax advantaged and

each account slightly differs in the

type of tax benefits that it provides

but they all provide some sort of tax

advantage which allows you to pay a lot

less in taxes and eventually keep more

of what you make because you're getting

to keep more of the investment gains

versus just giving it to the government

and now the fourth type of account I

have is a taxable brokerage account this

is just a regular investment account

where you can hold stocks and bonds

there's no tax advantages now let's talk

about what investments I put in these

accounts in my Roth IRA I am investing

for the long term right so in this

account I hold what you call index funds

now index funds are basically baskets of

many many different stocks hundreds

sometimes even thousands of stocks that

you can buy in one easy purchase and

because there's so many stocks in there

it's basically a representation of the

entire economy so when I'm buying an

index fund I'm buying like a slice of

the economy so it's a really passive

easy way to invest and benefit from the

long-term growth of the world economy

as for my HSA I also invest in the same

index funds as my Roth IRA and I plan to

hold these funds for the long term I'm

not going to buy and sell try to time

the market or try to optimize I'm just

gonna buy them and I hold them until I

am much much older we're talking like 10

20 30 years from now

as for the specific index funds that I

invest in these are the ones that I hold

in my Roth IRA and HSA so you can check

them out and research them at your own

Leisure I'll also link to additional

beginner investing videos below

and then I have my solo 401K which is

also a retirement account and in this

account I invest in the same index funds

that I just talked about and in addition

I also invest in something called REITs

Reit stands for Real Estate Investment

Trust and it's essentially a stock that

owns a lot of real estate stocks in real

estate companies and this is a really

cool way to basically own real estate

without having to get a mortgage and get

all the money to buy a huge property you

can actually be a real estate owner by

buying a Reit and some REITs are under a

hundred dollars a share so I hold a

variety of reads in my solo 401k and the

reason I hold REITs in my 401k versus a

taxable account is because REITs pay

really really good dividends because you

know it's that rental income from Real

Estate however Reit Dividends are not

tax favorably because dividends come in

two forms non-qualified and qualified

and read dividends happen to be

non-qualified and so if I had held the

reads in a taxable account I would be be

paying really significant income taxes

on those dividends that I'm getting

every quarter and because I don't want

to do that I decided to shelter my

income into a 401k where I will not have

to pay taxes on those dividends so this

is a little bit more advanced when it

comes to investing but you do want to be

conscious of how Investments are taxed

and organize your accounts and

Investments accordingly because let's

face it income taxes are like what 30

percent and up so just by being smart

about how things are taxed and holding

them in tax advantage accounts you're

already getting a 30 on your investment

you know so I really really consider

taxes strongly whenever I'm sort of

planning out my investments all right

and then last but not least in my

taxable brokerage account I hold my

dividend stocks this is my dividend

portfolio and in my dividend portfolio I

own a couple of ETFs that pay high

dividends now ETFs are similar to index

funds they're a little bit different in

that they're a little more tax efficient

and they are tradable during Market

hours check out this video for more

details about the difference between

index funds and ETFs but essentially

they are also a basket of very

Diversified stocks so the ones I have

are PGX which is a basket of preferred

stocks there is vym which is vanguard's

ETF of high dividend paying U.S stocks

and then there is vymi which is

vanguard's ETF of the highest dividend

paying International stocks and I do

also want to mention my rental

properties I have three rental

properties in Las Vegas that are managed

by a property manager so they are more

or less passive I'll link to other

videos about my rental property

investing down below but basically those

bring in about three to four thousand

dollars of cash profit every single

month after I collect the rent and pay

all my expenses and insurance and

mortgage and stuff like that so that's a

nice decent source of investment income

so in addition to my core Investments I

also do a couple of extra supplemental

things which my might be interesting to

some of my more advanced investors out

there I do a bit of options trading

where I sell and buy call and put

options on my stock portfolio in order

to generate an extra return and I also

have what you call an indexed universal

life insurance policy which is kind of a

fancy instrument to invest more in a tax

advantaged way again I'll link to more

videos about all the stuff that I'm

talking about down below this video okay

well that's basically it for my walk

through on how I budget save and invest

this is essentially how I manage my

money and of course I hope none of this

has made you feel like you're not doing

enough or that you're behind we're all

on our own journey and timeline when I

started this whole money journey I was

so bad with money like I would just

offer to pick up the tab at brunch for

my friends and overdraft my account

that's how bad I was with my money and I

was also in a lot of debt and these

types of practices like budgeting and

saving up in an emergency fund these are

what helped me start getting myself into

to a better situation and having like a

really good empowered relationship with

my money now if you liked this video

please let me know in the comments

because I'm thinking of turning this

into sort of like a regular monthly

series and in these videos I would

update you on things like how well I

stuck to my budget what I'm budgeting

for the following month what my savings

goals are at the moment how my

investments are doing net worth updates

my financial goals I feel like that

would be really fun and it would also

hold me accountable too so let me know

what you think if you'd like me to start

this as a money diary series and other

than that I really hope that you enjoyed

this video thank you for hanging out

with me today and I will see you in the

next one bye

[Music]

thank you