Including Investing Contributions in Your Budgeting
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As an investing blogger, I read a whole bunch of blogs that are personal finance related. Some of them cover investments, but mostly they cover how to live below your means and save as much as possible. A large part of this includes setting and living to a budget so that you know where your money is going and how much. My wife and I do have a budget and we use Microsoft Money to administer it. A large component of our budget is the money we allocate to our investment accounts every month. I firmly beleive that investment contributions must be a line-item in any budget, no matter how big or small that contribution is.
Now, I am not going to walk through how to make a budget – there are many other blogs and sites out there that have done that and they have done it very well. I would recommend checking out the No Credit Needed blog run by NCN. This post in particular will get you started: Simple Simple Simple. He also does a podcast which I have just started listening to which offers some really good, down to earth advice.
The standard rule of thumb for allocating money to investing in a budget is 10%. This is the basic premises behind the books, The Richest Man in Babylon
If you can do more than 10% all the power to you. Right now, I contribute about 11% to my investment accounts through work contributions and on my own. Every little bit extra helps.
(Photo Credit: Michael W)
10 Comments on this post
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10KPortfolio said:
I completely agree with you. Investing should be part of your budget and at least 10% of your income should be invested. Your blog really has me looking into high dividend stocks.
December 4th, 2007 at 11:45 am -
Plan Your Escape said:
I guess paying yourself regularly is kind of like paying yourself a dividend. Since we’re looking for a steady dividend from the companies we invest in, why not expect the same from ourselves? By setting our saving level as a percentage of our income, we are also increasing the dividend we pay ourselves each time we start making more money … just the sort of thing we like to see from the companies that we invest in!
December 4th, 2007 at 12:05 pm -
Cavemanus said:
Thanks Dividend Guy. It is funny, I was just posting about saving money yesterday. One point I made was that some people look at saving as a negative choice, as if it is something that only comes out of necessity. Some worry they should aspire to waste money to look rich. I would submit that saving is a lifestyle choice for anyone, of any means, who aspires to gain and maintain wealth. People who become monetarily rich never get there by waste, but by saving.
You should never be embarrassed about saving money. Never.
A good saving plan starts with tracking your expenses. If anyone is interested, I posted a budgeting spreadsheet tool on my blog a while back.
http://cavemanus.blogspot.com/2007/09/cave-budget-spreadsheet.html
You can have it for free (more savings) and I encourage you to customize it for your needs.
For the record, including our 401k’s, Roth IRA’s and cash savings, my wife and I saved about 20% of our pretax earnings so far in 2007. To help do this, we spent
17% less on dining out and 14% less on groceries (go coupons!). I stopped having a beverage on the train home every night and I quit smoking. Every little bit helps. When you start saving, it can become a way of life. It becomes contagious. Once you start, you will be amazed at how much money you once wasted.December 4th, 2007 at 1:30 pm -
2million's dividends said:
Just curious – is that 10% above your retirement savings? I save about 20% in retirement contributions, but might not hit 10% in regular savings/investments.
December 4th, 2007 at 9:06 pm -
The Dividend Guy said:
Hey 2million – that 10% is in total (pensions, reitrement, taxable). I would love to be able to do more right now but my wife is a stay-at-home mom and we live on on one salary!
December 5th, 2007 at 10:07 am -
Cavemanus said:
I am entering that world right now, Dividend Guy, which is why we tried to save so much in 2007. It is likely that in 2008 we will save less. It is worth it though to have one of the parents raise the baby (if possible).
Good luck!
December 5th, 2007 at 12:26 pm -
moneygardener said:
I believe that 10% is a very small amount of money to save especially if we are talking about net income. If one is serious about buidling wealth an amount great than 10% (more like 25 – 30%) of net income can be saved without much trouble if you live below your means.
December 7th, 2007 at 5:24 pm
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[...] Including Investing Contributions in Your BudgetingBy The Dividend GuyThis is the basic premises behind the books, The Richest Man in Babylon and The Wealthy Barber . Figure out what that amount is (Your Income X 10% = Investment Contributions) and set it up to come out of your account each and every …The Dividend Guy Blog – http://www.thedividendguyblog.com [...]