A sample budget with Jenny

Jenny doesn't have much to her name. She just graduated from college with a film degree, into an economy where the film industry isn't doing well, so she can't find work doing what she loves to do. She lives in an apartment with a roommate, her best friend Jill, from film school. Jill is in the same predicament, but we'll only look at Jenny's finances since they're the same. Because she can't find work in her field, she instead manages a sandwich shop. 

She currently has: 

• a car loan with $10,000 remaining, to be paid over the next 4 years at 6% interest
• $30,200 in Federal student loans, to be paid over the next 10 years at 3.65% interest
• $2,000 in a high-yield savings account earning 4.5% annually
• no investments 

Here's the breakdown of her income and expenses:

Gross Income per month	$3,333.33
Student Loans	$300.00
Taxes	$776.00	$9,312.00
Takehome Income	$2,257.33
Rent	$720.00	$1,537.33
Health	$180.00	$1,357.33
Groceries	$285.00	$1,072.33
Transportation	$350.00	$722.33
Utilities	$160.00	$562.33
Netflix	$15.50	$546.83
Clothing, Makeup, etc.	$100.00	$446.83
Charity	$40.00	$406.83
Fun	$350.00	$56.83
Tax Filing Software	$15.00	$41.83
Rainy Day Fund	$41.83	$0.00

Jenny's spending falls into 2 buckets: things she needs on a monthly basis, and things she wants to have but doesn't need to survive. Especially on a lower income like Jenny's, it's recommended that 50% or less be spent on needs, 30% or less on wants, and 20% or more be saved and/or invested. 

Let's see what her breakdown is:

She needs a place to live; to pay for medicine, health insurance, and other health care costs; food; a car and related expenses; and to pay for WiFi, heating, lights, water, and other utilities; software to help her do her taxes; to pay her taxes; and to pay down her debts.

It would be nice to go hang out with her friends several times a week, shop for new clothes and makeup, and give to charity, but she doesn't need those things, as good or fun as they might be, to get by month-to-month. 

So let's bring out another table. As of now, Jenny's budget is allocated as follows:

Needs	$2,786.00	83.58%
Wants	$505.50	15.17%
Savings and Investments	$41.83	1.26%

 Remember: needs should max out at 50%, wants should be no more than 30%, and savings and investments should be at the bare minimum 20%. 

So let's recommend to Jenny a few changes, then see how the breakdown changed:

1.  Move much closer to her job into an apartment she can split with Jill for $500 for each of them per month instead of $720, creating $50 savings in gas she doesn't have to buy, and where utilities are $20 cheaper per month 
2. Don't go out so often. When she does go out with her friends, she should choose cheaper activities that are just as fun, such that she only ever spends $50 a month on those outings 
3. Of the extra money she now has put $315 per month in savings until she can has 4 months' worth of money saved up, and $315 into a retirement account, in which she buys a total-market index that tracks the S&P

If Jenny does that, then she'll have the following breakdown: 

Needs	$2,496.00	74.88%
Wants	$205.50	6.17%
Savings and Investments	$631.83	18.96%

This still isn't ideal-- the budget is still too needs-heavy-- but saving and/or investing almost 19% is so much better than saving and/or investing only about 1%! So for that, we should all say "Good job, Jenny!"

It will take Jenny 2 years to meet her emergency fund savings goal, so let's see where she'll be by then:

• She'll have $10,112 in savings
• Her $10,000 car loan will now only have $5,298 to be paid-- about half of the principal will be gone!
• Her $30,200 student loans will now have $25,007 to be paid-- about 1/6 of the principal will be gone
• She'll have $8,571 in investments which can keep compounding over time

Having cut the principal of a car loan in half, and having made about a 16.7% dent in a student loan (even though that loan, like the car loan, and almost all other debt, is amortized, front-loading the interest payments) is a sign of significant progress! 

Now let's check back in 8 years from then.

She'll have

• about $50,900 in savings, which she could earmark such that, for example, $12,000 of that is for emergencies, and the rest, $38,900, is a very good start to a down payment, and could fully fund the down payment toward the average house of these green states (but not yet in the red states, because there, housing is too expensive, and her down payment isn't yet 20%):
  
  
  
  
• no more debt, since both her car and student loans will have been paid off.
• If she stays at the sandwich shop, isn't promoted, and just gets raises in line with the average inflation since the mid-1990s, she'll be making $49,500, almost $10,000 more than at the beginning of the 10 years
• If she finds a job at a big film studio, she could be making double, if not triple, that much, and earning more every year as she gains practical experience and puts her degree to good use in a much more favorable economy