How to figure out your monthly budget, aka how to be a big boy
No one taught me this, such as my parents...my friends don't speak about it...it was never a subject taught in school and I have a master's degree...so it's being talked about here for the benefit of everyone who reads it. It might seem obvious and not even worth covering to some people who are already adept, but I can attest that not everyone knows the basics of personal finances. I'm just learning this stuff shortly before I share here, so if I make mistakes please correct me. Okay...
Step one in figuring out your budget is to estimate what you'll owe on taxes. This seems to be the best calculator for that in the US for this upcoming year's taxes (after the recent Bill). It might not be 100% accurate, as some calculators have slight variations, but it'll be close.
From that same website, get the result and find out what your monthly "Take Home Pay" is. If you get paychecks, you can also simply use the amount you get in a month. I think if you're paid biweekly, it's good to multiply that by 26 to get the yearly cash amount (52 weeks in a year divided in half for the sake of paychecks arriving every other week is 26), then divide by 12 to find out monthly cash. If your paycheck gives more cash per month than your estimated take home pay amount, I think it's best to just go with the estimated number and save the remainder for paying taxes. If the paycheck gives less cash than the estimated take home, that's okay. Now for the actual budgeting...
It's ideal if 50% of that monthly take home goes toward your Needs, 20% goes toward Savings, and 30% is left over for your Wants.
All of your real monthly expenses should be added up...it's good to go over the previous few months of bank invoices and see where your money really went. Sometimes it's easy to think of rent payments, car payments, cell phone bill when listing our expenses...but it's easy to forget about Netflix or Microsoft Office monthly payments, for example. Put down what the expense is for, such as car insurance payments, and put the exact monthly cost next to that...add them all up and find the total expenses amount.
If that total is more than your Needs, take the remainder out of your Wants. If that's happening, it becomes clear how nice it would be to save on expenses like groceries or housing, because it frees up a lot of cash for doing whatever you want with. Sometimes it's possible to have next to zero money for wants...if you're already decently frugal, then you know it's good to look for a higher paying job.
For your Savings, 1/3rd should go toward an emergency fund...1/3 should go toward retirement...1/3 should go toward paying off debts. When paying off debts, you can either choose to pay off the one that is the largest amount due each month which will help free up some monthly cash for you...or pay off the one with the highest interest rate, which could save money if paying things off over a longer period.
If you have credit card debt, consider the interest rates. They're probably higher than return rates of the stock market (which we can ballpark at 10%). If you're investing during a time that you're paying off credit cards, it would be more effective to use that retirement money toward paying off debt. If the debt has no interest, then save toward retirement at the same time.
Once debts are paid off, 1/2 can go to the emergency fund and 1/2 to retirement.
In terms of retirement...In other posts in this thread I already discussed my personal opinion on stock market investing, which is Paul Merriman's Ultimate Buy and Hold strategy using Vanguard (because of low fees) ETFs. I personally think that a 401k is a horrible strategy for people who don't have upper class incomes, even though it's pre-tax...if you choose to do a 401k, it lowers your monthly take home pay, and it isn't as easy to choose your own ETFs. If you still have at least 3 decades before you'll start thinking of retirement, it's best to have a very aggressive portfolio with no bonds...that's my view, because bonds have such low interest rates that they won't help you accumulate as much money, and you don't need the stability since you're not withdrawing anytime soon.
There are other forms of retirement investments besides the stock market, which may even perform better if you're smart and up to the challenge of learning how to use them. If an investment has some risk to it, if there is the potential to lose money, you should diversify by also adding other types of investments.
For the emergency fund, it should cover 3-6 months of your real expenses (which you already figured out above). This is essential in case you get fired, have unforeseen expenses like having to pay out car insurance deductibles for example, etc. It also helps you not use credit cards for these emergencies, which rack up debt that interest is paid on. So, it's good to think of the emergency fund as another non-negotiable expense each month, just like rent is.
The emergency fund should be in a high-interest accruing savings account in order to keep up with inflation (I will probably personally use Marcus by Goldman Sachs). These types of accounts sometimes allow 6 withdrawals per month, so if you have an emergency, it's good to keep that in mind and probably take out more than you need. Other types of accounts aren't so good for holding your emergency funds.
So to cover the Savings category again...I personally think it's wise to start with putting half of it into emergency fund, and half into paying off debts. Pay off the largest debt first in order to save money. Once debts are paid off, put that half into retirement investments, as you continue to build your emergency fund. Once your emergency fund reaches 3-6 months of your total monthly expenses, you can put the entirety of your Savings allotment toward retirement investing.
Now that you have your personal budget, you should calculate your debt to income ratio. This is found by taking your total monthly expenses divided by your gross monthly salary (not the amount found on the tax website above, but the amount before any taxes are taken out). You'll get a number that's a percentage...if it's above 50%, that's dangerous. If it's 40-50%, that's considered financially stressful. If it's 20-40%, that's considered average. If it's under 20%, that's excellent. This number can reveal that we need to increase our income, and decrease our expenses. Sometimes lenders look at the DTI ratio to determine how well you can manage debt.
Another calculation to understand your personal financial health is finding your net worth. To figure this out, you need to know your assets and liabilities. Assets are what you own (the fair market value of those things)...for instance, if you own a house and have a mortgage, the fair market value of the house is your asset and the mortgage is your liability. Liabilities are things that you owe. So just make two columns...what you own for assets, and what you owe in debts for liabilities. Net worth = assets - liabilities.
Knowing that assets are what determine our financial health, it's good to look into how to accumulate more assets (google searching different types of assets is enlightening)...and knowing that liabilities are debt and can decrease our net worth, it's good to think of how to pay those off. To get more complex into this, you can look into what good and bad assets are, and what good and bad liabilities are.
For instance, you can own a house and rent it out to people, earning more from their rent than you make for the monthly payment on the mortgage, which is having a positive cash flow from it. The fair market value of the house is your asset, the rent is adding to your income, and the liability is your mortgage that you owe. In this case, because of it being an asset (but only when you sell it), and because of it increasing your income, it's a "good liability". A bad liability would be something like credit card debt, which isn't an asset (you can't sell it), and which doesn't increase your income. A good asset can be sold for a profit or generates income...a bad asset could be sold at a loss, and doesn't generate income.
Okay, so that was the basics. I took a lot of it from one of the books I recommended earlier in this thread, "The Infographic Guide to Personal Finance"...but this post has a lot of ideas not directly from that book, too.