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Co-CEO, leading GrowthApril 11, 2023

How to budget and figure out how much you can invest

Learn how to manage your money and save with a personal budget — even when times are tough.

How to budget and figure out how much you can invest

How should I manage my money? 

Money management is all about balancing spending and saving. Everyone will have different needs, expenses, financial goals, investment risk tolerances, and income levels, but learning to manage money is a vital step for any adult. 

Here are a few of the most popular ways that people manage their money so they can save for the future. 

  1. A popular personal finance rule is the 50/30/20 rule.
    A person should be spending 50% of what they earn on monthly necessities like food, housing, childcare, healthcare, and electricity, saving 20% (which can be a combination of investing and contributing to savings accounts), and using the 30% left over for discretionary spending.

  2. Or, use the 80/20 budget rule.
    Other financial planning and budgeting formulas combine the 30% and 50% to simply be 80% to cover all needs and wants, leaving 20% to be saved or invested. 

  3. Increase income by getting side hustles or passive income.
    When inflation hits, many turn to second or third jobs to support themselves. 16% of respondents in a UK survey in 2022 reported taking a second job due to increased cost of living expenses. And today, 40% of Gen Zers have at least two jobs

  4. Deal hunting and choosing lower-priced items.
    One choice for better managing money is using discounts, price comparison sites, coupons, and loyalty programs. This option can be effective, however, it’s time-consuming — and, inflation has led to retailers holding out on deals. Plus, choosing lower-quality products can cost more in the long run

However, today, we’re in a landscape where inflation, economic instability, and insufficient salaries mean that people are often spending 80% of their income (or more) on their basic needs, which means saving 20%, or taking a second job may be out of reach. That’s okay: you can always save a bit less during tough times and try to save more when things improve. 

And, you can turn to passive investing strategies like the Cenoa Super Wallet to grow your funds without any time or energy spent on your part. 

How much should I save?

Ideally, a person should be saving at least 20% of their income each month in order to build up wealth and meet savings goals, such as building an emergency fund, buying a home, building a retirement fund, and paying for expenses related to raising a family or making any other dreams come true. Parents may want to save more if possible, given the rising costs of education and healthcare in many countries. 

How much should I be investing?

Investing often falls under the savings category when making a household budget, so it’s typically anywhere between one and 20% of your income. Depending on each person’s risk tolerance and financial goals, they can choose to spread their savings contributions across traditional savings accounts, a 401K or other type of retirement fund, high-yield savings accounts, mutual funds, stocks, or new, digital-dollar based options like Cenoa. 

It’s always possible to invest with a small budget, because something is always better than nothing. Investing even tiny amounts of money add up over time. Just calculate the compound interest on the smallest amount you can contribute for some inspiration.

How much should I be spending?

There’s no magic number, but ideally, a person will spend about 80% of their income each pay period. As mentioned above, it’s unfortunately common for people to spend virtually all of it and have little or nothing left over to save, due to skyrocketing cost of living. 

However, even just saving what little is left over can make a difference in the long run — especially if your saving or investing plan includes guaranteed yield.

Taking inflation and currency devaluation into account when saving

Currently, many emerging markets are experiencing regional currency devaluation, which can hinder the ability to save. Just as soon as you get money into your account, local currencies can lose value, ruining your saving efforts and possibly leading individuals to take out loans. 

To address local currency devaluation and global inflation rates, think about keeping your salary in U.S. dollar-based debit cards, or keep your salary in dollars. Then, sell dollars for local currency on a regular, short-term basis. Minimize your budget’s exposure to local currency fluctuations to make your monthly budget and spending devaluation proof.

How to create a budget

Creating a budget can help anyone get a handle on the expenses they can control. A budget tracker can’t lower your rent, but it can help you identify areas of overspending that can make it easier to have a little bit left over at the end of the month to save or invest.

To build a budget, choose a budgeting app (or clone a budget spreadsheet template), fill in the details about your spending categories, and link your bank accounts to your app. Then, regularly check in on your budget and how your spending matches up to your budgeting goals. 

Spending categories to monitor

Fixed expenses

Fixed expenses are those that generally stay the same month to month. They may change on a yearly basis, but you can largely predict how much you’ll need in the short term.

  • Rent or mortgage

  • Education costs 

  • Childcare or elder care

Necessary flexible expenses

Necessary but flexible costs are those that go towards non-negotiable needs in your life, but whose cost can fluctuate on a monthly or seasonal basis. 

  • Heat 

  • Electricity 

  • Water 

  • Internet  

  • Groceries

  • Health care costs

  • Transportation costs (gas, insurance, public transit fares)

  • Medicine

  • Toiletries

Leisure flexible expenses

These costs are the ones you have most control over — and the ones that a budget can help you reign in. 

  • Restaurant food (takeout, delivery, and in-person)

  • Hobbies, including sports team fees, clothing beyond the basics, beauty products and toiletries beyond the basics, and craft supplies

  • Nightlife (bars, clubs)

  • TV or streaming service subscriptions

  • Vacations and travel

  • Fitness classes

  • Unnecessary rideshares  

Apps to help get a handle on your finances

Get a budgeting app

Budgeting apps like Mint, You Need a Budget (YNAB), and Empower can connect to your bank account and automatically categorize all your expenditures, making it easy to spot places where you can cut back.

Get an investing app like Cenoa

Cenoa is a new fintech app that lets investors all over the world hold their savings in the form of digital dollars that are always on par with the US dollar. And Cenoa provides an excellent yield of up to 8%, so anyone can grow their savings steadily and sustainably — even if it’s just a few dollars at a time. It’s one of the best low-budget, low-risk investments. 

Learn more about how Cenoa works, and how it can help you grow your wealth.