Case Study: Building a Budget

The past few months, we have been working our way through a case study of Josh and Sarah Ackerman. Josh and Sarah aren’t real people – they’re entirely fictionalized. However, the financial issues they’re facing are very real. Through this case study, we’re showing you how a couple, like Josh and Sarah, can work with NewLeaf Financial Guidance to create a comprehensive financial plan, conquer their financial fears, and start building a path to their long-term goals.

In our last blog post, we talked about how Josh and Sarah are getting a handle on their cash flow with a hub account, and discussed how we can start spending intentionally so that their spending lines up with their values and leaves them feeling fulfilled. Today, we’re tackling the budget that Josh and Sarah will start implementing to prioritize charitable giving, saving, debt repayment, and day-to-day expenses.

Note: If you’re just now joining us, you may want to start at the beginning!

The 20/30/50 Budget Start Goal

Josh and Sarah officially have their hub account set up, which is helping them to “recreate” a paycheck and prioritize their big financial “to do’s” like saving and debt repayment. But how much money gets funneled toward those goals from your hub account? And what are you supposed to do with the rest of your “recreated” income?

First, let’s go over what Josh and Sarah’s experience with budgeting is. As we talk through their initial financial plan, we’re going to go over their past experiences, and how those moments have shaped their views of both money and budgeting. Sarah immediately chimes in. She’s used a wide variety of budgeting apps that help her track spending down to the cent. She loves how organized these apps help her to feel, but her enthusiasm ends up waning after about the first month of actively sticking to a strict budget and spending-tracking method.

Josh is surprisingly wary of budgeting. He feels like they always end up leaving him feel trapped, inflexible, and frustrated with his failure to adhere to the budget’s rules.

My 20/30/50 “starter” budget addresses both Josh and Sarah’s problems with budgeting. The budget is simple, and doesn’t rely on tracking every last cent. Instead, it focuses on broad spending categories – two of which are completely automated through your hub account. Here’s how it looks:

20%: Saving

30%: Debt Repayment

50%: Everything Else

Easy, right? Through their hub account, Josh and Sarah can automate a 20% saving to a cash emergency fund or a retirement savings account. They can also automate debt repayment from their hub account, and send 50% of their after-tax income to their personal checking as their “recreated” paycheck. This simplifies their budget, and automates the majority of their “big ticket” budget items.

Graduating to the 10/20/30/40

Once Josh and Sarah have a handle on the 20/30/50 budget, we’ll graduate them to the 10/20/30/40 budget – which incorporates 10% charitable giving. Because one of Sarah’s original values from our values assessment was religion, she’s thrilled that she’ll be able to actively contribute 10% of their after-tax income to their home church and other charities that their church supports.

Although Josh is also excited about giving 10% of their after-tax income to charities that matter to them, he’s a little stumped as to why. After all, they’re currently weighed down with no small amount of student loan debt. At NewLeaf Financial Guidance, I recommend that all of my clients give 10% of their after-tax income to charities or causes that they’re passionate about. I do this for a few reasons:

  1. One of the most freeing things, when it comes to money, is giving some away. Try it, you’ll feel better about giving some cash away than spending it on coffee. You’ll feel emotionally fulfilled spending your funds on things that matter to you – which helps you to spend less on things that don’t matter to you in the long run.
  2. Once you know your needs are covered, you’re making strides toward paying off debt faster than ever and saving for your future at a greater rate, 10% won’t feel like an insurmountable goal. You’ll likely not even notice that it’s gone.
  3. At some point in our lives, we all receive a helping hand. I’m a big believer that turning around and giving of your own money to help someone else is a big part of a values-based financial plan. I also believe it helps to put our own finances in perspective when we’re able to give to a charity or a cause that may be helping people who are much less well off than we are.
  4. Did I mention… there may be financial / tax benefits?

A Feeling of Relief

The reason I love helping clients implement a budget right away when we start working together is that it gives them a colossal feeling of relief. They don’t have to track every stray cent that goes in and out of their account, and they’re still getting a handle on their cash flow. This is a huge step in the right direction for Josh and Sarah, and for all of NewLeaf Financial Guidance’s new clients.

Wondering what’s next? Stay tuned for our next post!