Winning Financially in 2025: Making a Budget
In this episode of Money Rehab with Nicole Lapin, the host outlines a practical approach to financial planning. Lapin shares strategies for goal-setting and creating a comprehensive life plan spanning career, living situation, family, and leisure activities. She introduces a budgeting framework that divides income into categories for essentials, future goals, and discretionary spending.
Lapin emphasizes tracking expenses meticulously and evaluating whether your spending aligns with your life goals. She offers tips for adopting a "spending plan" mindset, celebrating small wins along the way, and continually refining your plan as circumstances change. By the end, you'll have a roadmap for budgeting responsibly while enjoying life and making steady progress toward your financial objectives.
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1-Page Summary
Goal-setting and planning for the future
Nicole Lapin emphasizes developing a comprehensive life plan by outlining specific goals for various aspects of your future: career, living situation, family, and leisure activities. She advocates using the SMART framework – ensuring goals are specific, measurable, actionable, realistic, and time-bound.
Budgeting and Tracking Expenses
Lapin introduces a budgeting approach that divides income into three categories: Essentials (70% for housing, food, etc.), Endgame (15% for retirement, major purchases), and Extras (15% for discretionary spending). She stresses analyzing statements to identify all expenses, then comparing totals to target allocations.
Aligning your budget with your financial goals
After outlining life goals and creating a budget, Lapin suggests evaluating how well spending aligns with objectives. Adjustments may be needed to ensure the budget enables steady progress toward goals, like contributing more to retirement or reducing entertainment costs.
Practical tips and strategies
Lapin recommends adopting a "spending plan" mindset over a restrictive "budget" view. Celebrate small wins, understand perfection is unattainable, and continually refine plans as circumstances change. She advocates remaining adaptable while enjoying life responsibly.
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Counterarguments
- The SMART framework, while popular, may not be suitable for all types of goals, especially those that are exploratory or creative in nature, where flexibility and adaptability are more important than strict measurability and time constraints.
- Dividing income into Essentials, Endgame, and Extras might be too rigid for some people, especially those with variable incomes or unconventional financial situations.
- The 70/15/15 budgeting rule may not be feasible for everyone, particularly in areas with high costs of living or for individuals with significant debt, where more income may need to be allocated to essentials or debt repayment.
- Evaluating spending to align with objectives assumes that individuals have a stable and predictable financial situation, which may not be the case for everyone, such as freelancers or those with fluctuating income.
- The concept of a "spending plan" versus a "budget" is largely semantic, and the underlying principles of tracking and managing expenses are similar; what matters more is the individual's mindset and behavior towards spending and saving.
- Celebrating small wins and understanding that perfection is unattainable are positive messages, but they may not address deeper issues of financial literacy or behavioral change needed for some individuals to achieve financial stability.
- Advising adaptability and responsible enjoyment of life is sound, but without concrete strategies for managing unexpected financial hardships, this advice may not be sufficient for those facing significant financial challenges.
Actionables
- Create a vision board that visually represents your goals across different life areas to keep your objectives top of mind. Use magazine cutouts, drawings, or printed images that symbolize your career aspirations, desired living situation, family goals, and leisure activities. Place this board somewhere you'll see it daily to maintain focus and motivation.
- Designate a "goal guardian" among your friends or family who will check in with you monthly on your progress. This person can help hold you accountable to your SMART goals by asking for updates, offering encouragement, and discussing any challenges you're facing. Choose someone supportive and invested in your success.
- Start a monthly "finance date" with yourself to review your spending and savings. Set aside a specific time each month to sit down with your financial statements and assess how well your spending aligns with the Essentials, Endgame, and Extras framework. Use this time to make any necessary adjustments and celebrate the progress you've made, no matter how small.
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Goal-setting and planning for the future
Nicole Lapin provides a guide on setting SMART goals, emphasizing the importance of detailing specific objectives for various aspects of your future.
Develop a comprehensive plan for your desired life and lifestyle in the short-term and long-term
Outline your life goals for the short-term and long-term by dividing them into one, three, five, seven, and ten-year goals. This strategy makes the planning process manageable and structured. Nicole Lapin suggests starting by envisaging the life you desire and then working backward to figure out the financial steps needed to achieve it.
Outline specific, measurable, actionable, realistic, and time-bound goals for your career, living situation, family, and leisure activities over the next 1, 3, 5, 7, and 10 years
When creating a life plan, consider your career, living situation, family, and leisure activities. Ask yourself what you want these aspects of your life to look like in the future. Questions such as whether you want to have children, get a pet, own a house, change jobs, or start a business are crucial and need to be asked at the five-year mark. Recognize that achieving these dreams comes with financial costs.
Ensure your goals are SMART – specific, measurable, actionable, realistic, and time-bound. The actionable and realistic components are especially important. If your dream job requires additional education, outline the specific steps needed and set a realistic timeline for accomplishing these tasks.
Ensure your short-term and long-term goals are compatible and achievable
Nicole Lapin underscores the need to verify that your goals are compatible with one another. For example, one cannot pursue certain goals that demand full-time dedication while also planning to travel frequently.
Carefully consider the financial implications and constraints of your desired life plan, and make adjustments as needed to create a cohesive and realistic roadmap
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Goal-setting and planning for the future
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Counterarguments
- SMART goals may be too rigid for some people, as they can limit flexibility and adaptability to life's unpredictable changes.
- Overemphasis on detailed long-term planning might lead to disappointment or a sense of failure if goals are not met due to unforeseen circumstances.
- The focus on financial implications could overshadow other important aspects of life planning, such as personal growth, relationships, and mental health.
- The compatibility check of goals might discourage individuals from pursuing ambitious or seemingly conflicting objectives that could be reconciled with creative solutions.
- The structured approach to goal-setting might not suit everyone's lifestyle or personality; some may find success with a more organic and fluid approach to life planning.
- The proces ...
Actionables
- You can visualize your goals by creating a vision board that includes images and phrases representing your aspirations in various life areas. Start by gathering magazines, printouts, or drawings that resonate with your career, living situation, family, and leisure goals. Place them on a board in a way that reflects the balance you're aiming for, and use this as a daily visual reminder to keep your actions aligned with your objectives.
- Try gamifying your goal-setting process with a custom-made "Life Goals Bingo." Design a bingo card with squares representing different short-term and long-term goals. Each time you make progress or achieve a milestone, mark off a square. This can make the process more engaging and provide a visual representation of your progress.
- Implement a "Goal Swap" session with a ...
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Budgeting and Tracking Expenses
Mastering personal finances requires an organized approach to budgeting and expense tracking. Nicole Lapin provides a strategy designed to help individuals prioritize their spending and save for the future.
Categorize your monthly spending into three key areas: essentials, endgame, and extras
Nicole Lapin's budgeting philosophy centers around dividing your income into three main spending categories: essentials, endgame, and extras.
Allocate around 70% of your income to essential expenses like housing, food, transportation, and bills
According to Lapin, a healthy financial plan allocates roughly 70% of your income to essentials. This category covers fundamental needs such as rent or mortgage, utilities, food, transportation, insurance, debt, and other basic necessities.
Dedicate approximately 15% of your income to your "endgame" or long-term financial goals like retirement savings and major purchases
Lapin emphasizes the importance of future financial goals by suggesting that 15% of your spending plan should be dedicated to the "endgame." This includes saving for retirement, planning for home purchases, or setting aside money for travel and other major life events.
Reserve about 15% of your income for discretionary "extra" expenses like dining out, entertainment, and personal care
The remaining 15% of your budget, Lapin advises, should be set aside for "extras." These discretionary expenses include dining out, entertainment, personal indulgences like manicures and pedicures, and fitness classes.
Carefully review your spending history to accurately account for all your expenses
To ensure that your budget reflects your actual spending habits, a detailed examination of your spending history is necessary.
Comb through bank and credit card statements to identify and record every recurring and one-time expense
Lapin recommends thoroughly reviewing credit card statements and bank a ...
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Budgeting and Tracking Expenses
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Counterarguments
- The 70-15-15 budgeting rule may not be flexible enough to accommodate different income levels, cost of living variations, or personal financial situations.
- Allocating 70% of income to essentials might not be feasible for individuals living in high-cost areas, where housing and transportation can consume a larger portion of income.
- The 15% allocation for long-term savings may not be sufficient for those who started saving for retirement later in life or have higher income and can afford to save more.
- The 15% for discretionary spending does not account for individuals with different priorities or lifestyles, such as those who may prefer to allocate more to savings and less to discretionary expenses.
- The method of reviewing spending history might not capture cash transactions or expenses not recorded in bank or credit card statements.
- The strategy assumes that individuals have a consistent and predictable monthly income, which may not be the case for freelancers, gig economy workers, or those with irregular income.
- The budgeting approach does not explicitly address the need for an emergency fund, which is a critical component of financial planning.
- The me ...
Actionables
- You can create a visual budget tracker by using a whiteboard or poster in your living space. Draw three large circles representing the essential, long-term goals, and discretionary categories. Each time you make a purchase, write the amount in the corresponding circle. This visual representation will help you see how your spending aligns with your intended budget in real-time and can motivate you to stay within your targets.
- Develop a habit of weekly financial reflection with a journal or digital note-taking app. At the end of each week, spend 15 minutes writing down how your spending made you feel, particularly in the discretionary category. Did dining out bring you joy, or do you regret certain purchases? This emotional accounting can help you make more mindful spending decisions that align with your happiness and financial goals.
- Engage with a budget accountabi ...
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Aligning your budget with your financial goals
To achieve financial well-being and align one's lifestyle with long-term ambitions, it is crucial to ensure that one's budget is in sync with their financial goals. This involves evaluating current spending against established life plans and objectives, as well as making necessary budget adjustments.
Evaluate how well your current spending aligns with the life plan and goals you've outlined
One must assess whether the allocations for essentials, endgame (long-term financial goals), and extras are supporting the desired lifestyle and objectives. This means scrutinizing whether spending is paving the way for reaching one’s goals or if it's hindering progress. The realization that an initial spending plan is not on track to achieve one's goals can be eye-opening and necessitate a thorough reevaluation.
It is essential to avoid spending more than what's earned, as living in a personal budget deficit can derail one’s financial journey. It's critical to take time to evaluate finances: trimming excess spending where necessary and diverting funds into areas that bolster the pursuit of both short-term and long-term aims is key to financial balance.
Make adjustments to your budget as needed to ensure it enables you to steadily progress towards your financial goals
Furthermore, adjustments to spending habits may be required. This could mean contributing more to retirement savings, li ...
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Aligning your budget with your financial goals
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Counterarguments
- While evaluating spending is important, it can be overly simplistic to assume that all spending that doesn't directly contribute to long-term goals is hindering progress; some expenditures that seem non-essential may actually contribute to overall well-being and productivity.
- Living within one's means is crucial, but the advice to avoid a personal budget deficit doesn't account for situations where taking on debt may be strategic, such as investing in education or a home.
- The suggestion to trim excess spending assumes that there is always excess to trim; for some individuals, the budget may already be as lean as possible without sacrificing essential needs.
- The recommendation to contribute more to retirement savings is sound, but it may not be feasible for everyone, especially those with lower incomes or those dealing with immediate financial pressures.
- Adjusting lifestyle choices to align with financial goals is a good practice, but it's important to recognize that quality of life and personal happiness are also important factor ...
Actionables
- You can gamify your budgeting by creating a financial board game with your own rules that mirror your financial goals. Design a game board where each space represents a financial choice or milestone, such as paying off a debt or saving for an emergency fund. Use play money to simulate income and expenses, and create cards for unexpected financial events. Playing this game monthly with friends or family can make the process of budget evaluation and adjustment more engaging and can provide insights into your spending habits and progress towards goals.
- Start a "Budget Book Club" with peers where you read and discuss a personal finance book each month. After discussing the book's concepts, each member shares one personal financial goal and outlines steps they plan to take based on the book's advice. This not only encourages learning from a variety of financial perspectives but also creates a support system for making informed adjustments to your budget and lifestyle choices.
- Create a visual finan ...
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Practical tips and strategies for effective money management
Nicole Lapin shares valuable advice for those looking to improve their money management in a way that integrates long-term financial health with the enjoyment of life’s pleasures.
Embrace a "spending plan" mindset rather than a restrictive "budget"
Lapin encourages individuals to view their budget as a "spending plan," a perspective that avoids connotations of scarcity and restrictions. By treating your budget as a spending plan, you frame it as a tool that allows you to responsibly enjoy your money, including allowances for small luxuries, while still securing your financial future.
View your budget as a tool to responsibly enjoy your money while also securing your financial future
Lapin advises against setting overly ambitious, potentially unattainable financial goals that can lead to disappointment and disillusionment. Instead, individuals should set realistic goals and understand that it’s natural to veer off course occasionally. She suggests that one's budget should serve as a practical guideline for enjoying earnings without compromising on future financial stability.
Celebrate small wins and stay motivated on your money management journey
Recognize that perfection is not the goal, and minor missteps are a natural part of the process
Acknowledging that financial management is a fluid process, Lapin highlights the importance of celebrating small victories. Recognizing that perfection is unattainable and that setbacks are part of the journey helps to maintain motivation and a positive mindset toward money management.
Continuously review and refine your financial plan to adapt to changing circumstances
Be willing to adjust your goals and budget allocations over time as your life and priorities evolve
Lapin underscores the necessity of routine reevaluation and adjustment of one's financial plan. Assessments need to be made to check if the budget al ...
Here’s what you’ll find in our full summary
Practical tips and strategies for effective money management
Additional Materials
Counterarguments
- Viewing a budget as a "spending plan" might not instill the necessary discipline in some individuals who need stricter boundaries to manage their finances effectively.
- Treating a budget as a tool for enjoyment could potentially lead to justifying unnecessary expenses, undermining long-term financial stability.
- Setting realistic goals is important, but too modest goals may not push individuals to achieve their full financial potential or motivate them to make significant positive changes.
- Celebrating small wins is beneficial, but overemphasizing them might distract from larger, more important financial objectives that require sustained effort and discipline.
- While recognizing that perfection is not the goal, it's also crucial to maintain high standards in financial management to avoid complacency.
- Continuously reviewing and refining a financial plan is sound advice, but too frequent adjustments might lead to a lack of consistency and ...
Actionables
- Create a "fun fund" within your spending plan to allocate a small percentage of your income for spontaneous enjoyment, ensuring you have a guilt-free way to indulge while staying on track with your financial goals. For instance, if you love dining out, designate a portion of your fun fund for trying new restaurants each month, which allows you to savor the experience without derailing your financial plan.
- Develop a habit of "financial journaling" where you reflect on your financial decisions weekly, noting what went well and where you faced challenges. This can be as simple as keeping a notebook where you jot down your financial highs and lows of the week, helping you to recognize patterns, celebrate progress, and plan for improvements without feeling overwhelmed by the need for perfection.
- Use a mobile app that rounds up your purch ...
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