FREE PLAN: Increase Your Spending AND Wealth

Every Sunday, I send you something to THINK about, a question to ASK yourself, something to TRY and invite you to SHARE.

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THINK

How do you spend your money each month?

Most people have no idea.

They deal with expenses as they arise. They’ve been in debt for years and struggle to find spare cash to invest, despite knowing its importance and wanting to.

This is normal.

You’re in the minority if you have Direct Debits and Standing Orders sending cash to various accounts on autopilot as soon as you get paid. Selecting a % of your wage to save and invest each month as you steadily work towards Financial Freedom.

This is weird.

“It is no measure of good health to be well-adjusted to a profoundly sick society.”
Jiddu Krishnamurti

I love this quote.

Don’t choose to manage your money like most people, when most people are broke.

Be weird.

But not in that street corner standing, non-blinking, mouth-open, creepy way…

Let’s change the word “weird” to something more appealing and accurate…

Become… a “Maverick”.

Cue ‘Topgun’ electric guitar solo music

In this week’s Newsletter, we’re going to look at:

How to increase your guilt-free spending AND investing every month
2 Free Budgeting Guides:
- The 50/30/20 Budget
- Ramit Sethi’s ‘Conscious Spending Plan’
- What I like and dislike about them
How much I spend, save and invest each month
How much YOU should spend, save and invest each month

The 50/30/20 Budget

If you Googled “Creating a Budget”, you’ll stumble across the 50/30/20 Budget pretty quickly.

The 50/30/20 Budget is a great starting point for most “normies”.

You allocate your income into 3 broad categories:

Needs (50%) – The essential things you NEED to spend money on. Eg. Mortgage/rent, insurance, food, transport, minimum debt repayments, etc.
Wants (30%) – The discretionary stuff you WANT to spend money on. Eg. Eating out, entertainment, travel, personal care, subscriptions, etc.
Savings (20%) – The WANTs and NEEDs for future options and financial freedom. Eg. An emergency fund, debt repayment, retirement pot, children’s higher education, house deposit, holiday, etc.

EG. If you receive £2,000 post-tax, you’d allocate your money accordingly:

Needs = £1,000
Wants = £600
Savings = £400

Seems reasonable.

This is the budgeting equivalent of “missionary”…

…And there’s nothing wrong with “missionary”.

It’s simple and gets the job done.

A great place to start.

My only critique is that it’s a little basic and lacks nuance. With further exploration, you can get more from your budget.

50% NEEDs

Let’s be honest…

This is the section that no one wants to spend money on. But we have no choice!

Why set a “target” at 50%, when you can drive it down to 40% or even 30% without it impacting the quality of your life?

We really want this to be as low as possible, whilst still getting what you want from life.

Your house and transport will largely determine this number.

Reducing your NEEDs from 50% to 40%, means you have an additional 10% to allocate to WANTs and SAVINGs…

The fun stuff!

30% WANTs

If you have consumer debt and no Emergency Fund, should you be spending 30% of your wage on “whatever you want”?

I don’t think so.

It’s counterproductive and unhelpful.

I also think the % is too high. Here’s why…

I’m a self-help nut, and I tend to lean towards ‘delayed gratification’ in all areas of life.

Choosing 30% for WANTs and 20% for NEEDs, is biased towards ‘instant gratification’.

It’s 50% more for now versus the future.

It’s crucial to live in the moment and enjoy today, but not at the expense of tomorrow.

Greater balance is required.

Improving your finances, along with nearly everything in life, can be achieved by delaying gratification.

I would encourage switching the 30% and 20% around or at least compromising on an even split (25%/25%).

20% SAVING

This is too small to account for so many factors.

How long will it take to save up for a house deposit saving 20%?

And that’s not factoring in investing for your future freedom (priceless!), your child’s Uni bill or that dream holiday you’ve promised your family.

“But I don’t earn enough to save more?”

1. Reduce the NEED allocation (painless) and allocate more into SAVING.

2. Swap the WANT and SAVING allocations (30% SAVING, 20% WANT) or at the very least, split the two down the middle (50/50).

The more you invest early, the faster you’ll achieve Financial Freedom and the bigger your spending will be in future.

Aggressively grow your pot when starting out – when compound interest has little influence.

Dial it back when compound interest starts making a splash (approx. 10-15 years of investing), and enjoy the fruits of your labour.

The ‘Conscious Spending Plan’

Ramit Sethi is one of the OG Personal Finance experts. He published the bestseller, “I Will Teach You To Be Rich”, back in 2009.

Overall, I really like Ramit’s message.

I don’t agree with everything he suggests but he has some great concepts. If you’re new to Personal Finance, you’ll get a lot of value from his work.

Ramit’s ‘Conscious Spending Plan’ is about confidently spending a predetermined amount of money without any shame or guilt.

Love it!

Let’s dive in.

The ‘Conscious Spending Plan’ has 4 categories:

Fixed Costs (50-60%) – These are the essentials. It’s the same as the NEED section from 50/30/20. Eg. Mortgage/rent, insurance, food, transport, minimum debt repayments, etc.
Investments (10%) – A specific category for investing. Love it! This includes any money allocated for long-term investing. Eg. ISAs/Roth IRAs, SIPPs/401(k)s, taxable investing accounts, etc.
Savings (5-10%) – Cash savings for something you’ll use in 1-5 years. Eg. An emergency fund, holidays, gifts, wedding, house deposit, holiday, etc.
Guilt-Free Spending (20-35%) – Whatever you have left over amount for FUN! It’s the same as the WANT section from 50/30/20 but with a cooler name. Eg. Drugs, alcohol, hookers…. or for the more stable… eating out, entertainment, travel, personal care, subscriptions, etc.

I prefer the additional separation in the ‘Conscious Spending Plan’ but I don’t like the percentages.

FIXED COSTS

Ramit lives in New York. One of the most expensive locations in the world. For people living in London or LA, they’ll find the same challenge of trying to live on less than 50% of their wage. For people living outside of the mega-cities, it’s very achievable.

I don’t like the range because it almost justifies spending at least 50% on NEEDs, allowing wriggle room up to 60% and squeezing the ‘fun stuff’. You know… like spending and freedom.

As previously mentioned, this is the shitty section that no one wants to spend money on, but we have no choice.

Why have a minimum range?

Why not drive it down, without extracting value and free up more cash to put more into savings, investments and drugs?

INVESTMENTS

I love how Investments has its own category. As your ticket to freedom, it warrants it.

But 10% isn’t going to cut it.

Quiz time…

Q. Do you know when you can retire if you save 10% of your salary?

A. 41.7 years

(Based on 7% ROI, and a 4% withdrawal rate, starting from £0 – See below)

The difference is staggering.

I know most “normies” can’t afford to invest 50% of their wage right now. It’s incredibly hard to do.

But could you double Ramit’s suggestion to 20%?

Or push yourself to 30%?

20% = 30.7 years
30% = 24 years

There is no one right answer…

…But no one is raising their hand to working 41.7 years.

Unless you’re a Katy Perry ‘Boob Adjuster’ or Chris Hemsworth ‘Bicep Buffer’…

And even then job satisfaction might fade after 4 decades.

Boosting the allocation from 10% to 20% would save 11 years of work (according to the assumptions above). That’s a big deal!

What value are you getting from your life by increasing NEEDs from 50% to 60%?

I’d argue very little.

But it’s down to you to decide how long you want to work and when you want to become Financially Free.

Play around with the free ‘Early Retirement Calculator’ (used in the examples above) and find out what works best for you.

SAVINGS

I really like this category and the suggested amount.

If there’s something BIG you want to spend your money on (eg. wedding, car, house deposit, etc), then allocate a % of your wage and save up for it.

If you need £10,000 for a car, you can quickly find out how many paychecks you’ll need to hit the amount, and you can adjust your allocation, timeline or decision accordingly.

GUILT-FREE SPENDING

I like that Ramit suggests “whatever’s left” goes into this category, but I just think the suggested amounts are excessive.

I can’t get my head around pissing away 35% of your wage on whatever you want, whilst only investing 10% and subsequently working 42 years.

Starting people off at the bottom range of 20% seems nuts to me. Particularly, if people hate their job, feel lost, are in debt, have no emergency fund, etc.

Guilt-Free spending can also be obtained in the SAVINGs category (Eg. saving up for a nice car, watch or jewelary).

When combine the two, you’re looking at 45%.

Guilt-free spending is a crucial component to budgeting. It’s part of my ‘5 Bucket Budgeting’ system.

But it’s a luxury to be earned and expanded ONCE you’re debt-free and have an Emergency Fund.

It also needs to be in alignment to when you want to become Financially Free.

If you’re content working 42 years investing 10%, great!
I find most people want out in 10-20 years, but they invest like someone wanting to work for another 50+ years.

Once your actions and desires align, life is beautiful.

Design a Budget to meet your goals.

In my experience:

No Guilt-Free spending percentage will compare to being Financially Free

Overall, I really like the ‘Conscious Spending Plan’ categories. I would just alter the percentages.

I don’t like prescribing percentages, as everyone’s circumstances and goals are different. But if Ramit held a gun to my head, and made me, it would look like something like this:

Fixed Costs – 20-50%
Investments – 20-50%
Savings – 5-20%
Guilt-Free Spending – 5-20%

Less sexy, bigger ranges and more aspirational.

These aren’t amounts “normies” can jump right into. They’re targets to work towards over time.

How Much Do I Spend, Save & Invest?

“OK, Mr Money Master. How do YOU allocate your money?”

I don’t track percentages for budgeting, so prior to writing this, I didn’t know where they were.

I used Ramit’s ‘Conscious Spending Plan’ to break down my current budget to see how much I spend, save and invest.

Here it is! 😬

Income

I pay myself a wage from my publishing business, along with dividends which take me to the upper limit of the basic rate of tax:

Currently £50,270 /year or £4,189 /month.

I’ve invested a lot of money into my property business. HMRC allow all money lent to a business to be extracted without tax (AKA a Directors Loan).

My property income is currently £2,500 per month (tax-free Directors Loan).

I currently don’t take any income from my YouTube business or stocks and shares portfolio.

I invest money from my publishing business directly into my SIPP, which I’ve not included in the numbers below, as it’s a business expense, and I want to focus on Personal Finance.

Expenses

Using Ramit’s ‘Conscious Spending Plan’, this is how my budget looks:

Fixed Costs – £1,425 (21%)
Investments – £4,000 (60%)
Savings – £664 (10%)
Guilt-Free Spending – £600 (9%)

(The amounts for INVESTMENTS & SAVINGS can change based on what I’m saving for)

FIXED COSTS

The fixed costs above are my share. Lou contributes less.

For context, we have a mortgage and don’t have kids.

21% would be deemed very low. Most of that is due to my income.

If the average wage (post-tax) in the UK is around £1900 /month, £1,425 would constitute 75%.

If I were on the average wage, I would look to lower my FIXED COSTS.

As I mentioned earlier, I want this section to be low. It is, but there’s plenty of wiggle room:

Eg. I own a Mercedes – Nothing crazy, but it’s still more than I need. I barely drive.
Eg, I consume a lot of food (including meat) – We don’t hold back on food. We could easily ‘trim the fat’ on our grocery bill if needed.

I could go on…

INVESTMENTS

I maximise my Stocks & Shares ISA as a priority. In the UK, we can contribute £20,000 /year. I contribute £1,667 per month.

I want my tax free investment income to be as high as possible. Any income and capital gains from an ISA is tax-free.
I also like the option of drawing from it whenever I like. LIke I did a few years ago to fund a property development.

In the UK, we can contribute up to £60,000 /year to a SIPP. Most of my contributions are made by my publishing business (not included in these numbers). I also top up my SIPP with ‘personal contributions’.

SIPP ‘Personal Contributions’ – When I, Huw, put money into my SIPP from my current account, the Government apply Tax relief.
- Basic rate taxpayer – Pays £800 into SIPP, HMRC tops it up by £200. (£1,000 total)
SIPP ‘Employer Contributions’ – When my publishing business puts money into my SIPP from its business current account, the company can write the contribution off as an expense.
- £1,000 contribution – Reduces corporation tax by £190-£250 (based on annual profit).

When you multiply both examples above by the annual limit of £60,000, there are ‘Huwge’ savings to be made.

Depending on what my business has contributed and what I’m personally saving up for, my contributions will vary each month.

My goal is to fill my ISA and SIPP each year.

I also invest in Crypto, but that’s lower down my priority list, and I don’t do it monthly.

Why So high?

60% is substantially higher than most people can afford. Some would argue I’m investing too much considering I’m Financially Free (my property income covers FIXED COSTS and GUILT-FREE SPENDING).

But I’m happy with my current INVESTING percentage.

I rarely use up my monthly guilt-free spending and I don’t want for anything. So, I never feel like I’m missing out. I feel fortunate.
My goal isn’t simple FIRE. I want Fat FIRE (£100k+ /year investment income).
I enjoy investing and building wealth. This isn’t a sacrifice. (See point 1)
I want to help my friends and family, which demands greater resources.

I recently spent £1,000s on new gym equipment and in September, me and Lou did a tour of Scotland.

For those months, I invested less. No big deal.

If I were to make any adjustments, this is where I’d start. I’d reduce it by 10% and put 5% extra into GUILT-FREE SPENDING and SAVING.

SAVINGS

My FIXED COSTS and GUILT-FREE SPENDING are fixed amounts each month.

Whilst my INVESTMENTS and SAVINGS fluctuate each month.

I want to expand my cash savings to provide extra security and liquidity for investment opportunities in property, stocks, crypto and businesses.

I currently have around 10 months of FIXED COSTS in cash.

If I ever decided to stop working, I’d make sure I had 2-3 years of FIXED COSTS in cash, alongside my property income and Stock portfolio to draw upon.

As I still earn a wage, I’m happy with my current level of cash and I’ll continue to add to it over time.

GUILT-FREE SPENDING

I think 5-10% is a great marker for people starting out in Personal Finance.

When I started living frugally, I limited myself to £50 /month for a number of years.

It’s taken me time to loosen up the purse strings. I used to hate spending money. Now, I enjoy it. I get whatever I want or need without any guilt.

It’s a great position to be in and I feel very lucky.

There are 2 types of money problems:

Not having enough
Not knowing what to do with the excess

I’ll continue to offer you solutions to number 1, so you can find solutions to number 2.

Speaking of which…

How Much Should You Spend, Save & Invest?

There’s no fixed percentage I can give you to ensure you’ll have a balanced financial plan and be happy.

Here are 4 steps to closing the gap to that ideal:

1. YOUR FINANCIAL FREEDOM DATE

When would you like to be Financially Free?

Fill in the free ‘Early Retirement Calculator’ with your annual income, annual savings and expenses.
‘Crunch the numbers’ and see how long it’ll take you on your current trajectory.
Are you happy with that timeframe?

If you are, your work is done. Keep on keeping on and hit that goal! 👏

If not, increase the ‘Current saving rate’ by 10% and see how it looks. Keep increasing the number until you hit a timeframe you’re happy with.

This is the first % (INVESTMENTS) that we’ll build everything else around.

2. YOUR FIXED COSTS / NEEDS

Once you know WHEN you’d like to be FF, review your FIXED COSTS or NEEDS spending and drive that number down.

I created a post on ‘Destroying Debt’ with 57 Tips HERE. Work through Tips 4-31 to reduce this allocation.

Get this number as low as you can, without comprimising the things in life you value (ie. the gym, clubs or education).

What percentage is left after your INVESTMENT and FIXED COSTS / NEEDS are accounted for?

3. SAVINGS

Is there a big spend you’re saving for? (Wedding, house deposit, car, etc.)

If so, how MUCH do you need and by WHEN?

Make sure you can save enough each month to afford the thing you want within your desired timeframe. Adjust accordingly.

4. GUILT-FREE SPENDING / WANTS

What’s left? Go nuts!

Guilt-free spending needs to be factored for, even if you’re super-frugal, but it’s the lowest priority.

Remember, no Guilt-Free Spending percentage will compare to being Financially Free.

“But Huw… I want to retire in 10 years, buy a new car AND have lots of guilt-free cash.

If you’ve driven down FIXED COSTS / NEED spending as low as you can, you can pursue earning more.

This is another reaosn I love Side Hustles.

Do something on the side, which you enjoy or you’re interested in.

Any profits made on the side can go into your allocation above.
or split 50:50 into INVESTING and GUILT-FREE SPENDING (best of both worlds).

In summary, don’t go all in on any one allocation. Make sure you have balance across spending, saving and investing.

Allocate your budget to meet your needs and spend with intention.

Live for today and don’t forget about tomorrow.

Reflect and share this with someone.

ASK

“What do you think of the 50/30/20 Rule and Ramit’s ‘Conscious Spending Plan’?”

“What percentages are you currently operating at?”

“What areas would you like to improve?”

Write down what comes to mind.

TRY

Have you tried creating a balanced budget to live with intention?

Try working through the 4 Steps to make it happen:

Calulate your FF date. (HERE)
Calulate your Fixed Costs / Needs. (Bank statements or HERE)
Account for big upcoming spends.
Calculate what’s left for Guilt-Free Spending.

HIT REPLY and let me know which budgeting system you like or what changes you made after reading this.

I read and reply to every email, and remember, I’m rooting for you!

Remember: Little by little, a little becomes a lot.

Reply to this email and share how it went for you. Let me know if you’d prefer to remain anonymous.