A 2022 poll conducted by OppLoans revealed some frightening statistics: 53% of those surveyed had neither a savings account nor an emergency fund, and 70% didn’t have a retirement account. Additionally, one out of five spent more than they earned, and around 50% had unmanageable debt. What could be the reason? Of course, life throws us curveballs all the time. Accidents happen, layoffs occur, and people find themselves in difficult financial situations for reasons beyond their direct control. But why aren’t they at least ready? Perhaps the most startling figure from the study was that 70% didn’t strictly follow a budget.
We believe that many Americans are missing crucial components in their financial lives simply because they lack a budget. A well-planned budget acts as a cornerstone, bringing order to financial chaos and paving the way for sound financial decisions, and without one, chaos reigns. For firefighters, the stakes are even higher because the nature of your work amplifies virtually every financial risk.
In this article, we’re going to show you some very basic budgeting rules (and perhaps one that is not so simple) that will help you regain control over your finances so that you can begin putting all the pieces together: a goals-based financial plan, an emergency fund, an investment plan, and adequate insurance just in case.
The 50/30/20 Rule and Its Variations
The 50/30/20 rule is the most basic budget, designed to cover a wide range of financial situations. It suggests allocating 50% of your after-tax income to needs, 30% to wants, and 20% to savings and investing and/or debt repayment. If you’re unsure how to go about investing, read our article Investing 101 for Firefighters! Before investing, though, you may want to pay down any high-interest debts and establish an emergency fund first.
For firefighters, the 50/30/20 rule can be a good starting point, but your circumstances might call for some adjustments, so let’s explore some variations that might better suit your needs.
If you’re living in a high-cost area, you might need to adjust to a 60/20/20 split. This allows for 60% of your income to go towards needs, accounting for higher housing and living expenses. The remaining 40% is split evenly between wants and savings/debt repayment.
If you’d rather focus on aggressive savings or tackling substantial debt, a 40/30/30 split might be more appropriate. This approach maintains the same allocation for entertainment (30%) but increases the portion for savings and debt repayment to 30% and reduces the needs category to 40%.
Another variation to consider is the 70/20 rule with a flexible 10%. In this approach, you immediately ‘pay yourself’ 20% of your income and invest it. Seventy percent goes towards a combined category of needs and wants, and the remaining 10% is your “flexible” money, which you can put wherever it’s most needed each month. This could mean extra debt payments one month, additional savings another month, or perhaps a special purchase or experience when your other financial goals are on track.
Zero-Based Budgeting: Every Dollar Accounted For
If you want complete and total control over your finances, the Zero-Based Budget might be for you. It’s a method where every single dollar of your income is assigned a specific purpose, leaving you with zero dollars unaccounted for at the end of the month. Yeah, it’s as difficult as it sounds, but it lets you fine-tune your budget with laser focus. You start by listing all income sources and expenses, then assign each dollar a job – whether it’s for bills, savings, investments, debt repayment, or discretionary spending.
It can also let you make better use of overtime pay. Instead of treating it as extra spending money, you can intentionally allocate it to fast-track financial goals like building a robust emergency fund, saving for early retirement, or investing in additional training. While it requires more effort than simpler budgeting methods, especially at first, you might find the extra work pays off in greater financial clarity and faster progress towards your goals. Plus, there are many apps that can aid you in setting up your budget, like Mint or Monarch.
The Envelope Method
If technology isn’t your thing and you want a very straightforward approach, there’s always the envelope system. The envelope system is pretty self-explanatory. You allocate cash for different spending categories into physical envelopes. For example, you might have envelopes for groceries, entertainment, and gas. Once you’ve spent all the cash in an envelope, that’s it—no more spending in that category until the next payday.
Having physical cash is a great way to reduce nickel-and-diming yourself and make your budget feel more “real.” When we pay with our phones or with our cards, it’s really easy to lose track of how much we spend and how much we have left to spend. With the envelope system, you’re going to see exactly how much you have left whenever you take some money out.
For those who prefer a more modern approach, there are digital alternatives that mimic the envelope system. Apps like Goodbudget or YNAB (You Need A Budget) allow you to create virtual envelopes and track your spending in each category. These apps can be especially useful for expenses typically paid by card, like online shopping or bill payments.
What to Do When You Get a Raise
When you get a raise, it’s tempting to immediately upgrade your lifestyle. New truck, new quad or boat, a cruise with the family. Who doesn’t want that, right? But instead of letting lifestyle inflation eat up your raise, consider this your opportunity to fast-track your financial goals without feeling the pinch. You were living on your previous income just fine, right? So why not put that extra cash to work for you?
There are several savvy ways to allocate that additional income. You could accelerate your debt repayment, extinguishing those high-interest loans faster. Or boost your retirement savings – future you will definitely thank past you for that. Or maybe just invest in yourself – some advanced training or certifications could lead to even better opportunities down the line. The point isn’t to live like some kind of monk but rather to put your money to work for you now so you can live the life you want sooner rather than later in a financially feasible manner.
In Conclusion
These are just a few of the many budgeting strategies out there, each with its own strengths and potential challenges. The key is finding a method that works for you and STICKING WITH IT! And we’ll be blunt – not having and not sticking to a budget is the surest way to not achieve your financial goals. A budget is absolutely necessary, plain and simple.
As a firefighter, you’re used to planning and preparing for the unexpected. Applying that same mindset to your finances can drastically alleviate the stressors of home life. If you’re feeling overwhelmed or unsure about how to put your finances together, don’t hesitate to reach out.
Sources:
