iOS app Android app More

Featuring fresh takes and real-time analysis from HuffPost's signature lineup of contributors
Natalie Pace

GET UPDATES FROM Natalie Pace
 

Budgeting to Thrive, Not Survive

Posted: 12/04/2013 9:26 pm

Make your gift buying fun and your holiday season more bright with a new holiday budget plan.

Is the season to be jolly your bah humbug season, when you can't believe how long the gift list is and how short you are on funds? You'll find a lot more Christmas spirit when you adopt my Thrive Budget. Once you do, your holiday gift buying will be a breeze because you'll know exactly how much you should be spending (instead of going in debt to keep up with the advertising campaigns).

The sad truth is that most of us are unable to give because our big ticket items are eating us out of house and home, not our generosity. Cutting out Christmas and cafe lattes will not change anything in your life. Getting your big-ticket items in a reasonable range will launch you into dream-come-true living very fast.

The Thrive Budget
The Thrive Budget is based upon a simple formula that you should be limiting your basic needs expenditures to 50 percent of your budget, while the other half should be empowering you to thrive.

Here's the basic premise:

1. Invest the first ten percent of your income into a tax-protected retirement account. If you aren't doing this, you are giving too much money to Uncle Sam.
2. Donate ten percent of your income to your favorite charity. This is tax deductible, too.
3. Invest ten percent of your income on education. This may be tax deductible. Ask your accountant.
4. Spend 20 percent of your income on fun and things that bring you pleasure. This is probably not tax deductible, but it makes life worth living. Having fun pre-allocated in your budget means that you'll actually be spending less and enjoying more.
5. Limit all of your basic needs to just 50 percent of your income, including your home, insurance, car, food, clothes and taxes. If Warren Buffett pays lower taxes than his secretary, so can you.

8 Rules of Becoming Rich
Here are more details on how the Thrive Budget™ works.

1. Give yourself a raise.
Ten percent of your net income should go on auto-deposit into your 401(k), IRA, health savings account, etc. First. Period. It's tax deductible and the gains compound without capital gains taxes. Pay yourself now, or pay the IRS later. If you invest right, your nest egg should earn 10 percent while you sleep, meaning your money will be worth more than your salary in seven years and will out-earn you in 25 years. People who start at 20 could be in a position to retire at 45. It's important to start early and be religious about this fiscally healthy habit.

2. Be charitable.
Tithe 10 percent to charity. Fuel your favorite cause with your cash, take the tax write-off and reap the benefits of helping your community and networking with others who have like-minded goals. You will find your people through your charity networks. The best career moves I've ever made came directly from the relationships that I developed through my charitable giving.

3. Educate yourself, your family and others.
Education is the single highest correlating factor with income. Surgeons make more money than dishwashers, and surgeons who have educated themselves about investing make greater gains than those who invest blindly (or not at all). PhDs, medical, business and law students (even Steve Jobs) often sleep on a couch for years in order to double or triple their income (or earn billions) for life.

4. Have fun.
Health is wealth. You can't earn a great living if you can't get out of bed. And fun is a free endorphin that releases anti-oxidants that keep you healthy and sexy. What a beautiful reason to have some fun today. If you aren't setting aside money for fun, you are probably overspending on retail therapy and not even enjoying it.

5. Double your pleasure.
Double your fun budget. Make sure that you are spending 20 percent of your income for FUN.
You are worth it! This category is where you put that extra fun that you are not ready to give up in your "basic needs" category. For some people, it's spending a little more on their home -- whether it is on a pool, a better neighborhood or just an extra room so the kids can each have one of their own. For others, it might be spending a little more on the car. Mine is often spent on a really adventurous vacation that I can enjoy with my family and friends. If you are going to spend your extra fun money on your home, car, etc., the next tip is a critical piece of the equation.

6. Stop complaining.
Some people say, "I spend my fun money on my home," and then, in the same breath, complain that they don't take vacations. That's clearly not fun. If you are going to spend your fun money on your home, then you have to start enjoying your home more. Get creative about reducing your big-ticket items -- housing, transportation, insurance, taxes and food -- and you will find yourself with a lot more dough to thrive on -- and a lot fewer reasons to complain. (Getting your passive income in a tax-protected IRA is one way to get on the Mitt Romney 14 percent tax plan. Rich people earn passive income, not wages, which is taxed at a much lower rate.)

7. Basic needs must be under 50 percent, including taxes.
Ha! Think this is impossible? Steve Jobs dropped out of college, slept on the floor of his friend's dorm room, walked to the Hari Krishna Temple for free meals, audited some of the classes he was most interested in, and then founded the most valuable company in the world. I know a father of four who slept on his parent's couch while he attended graduate school. He became the CEO and chairman of a multi-billion dollar company. His kids are very happy now (although times were tough then). As a single mother, I used house sharing to double the strength of my dollar. So did Gloria Allred, the famous women's advocate attorney. One of Neil Simon's funniest plays was based on two divorced men living together - The Odd Couple.

8. Health & Health Savings Accounts.
If you are a healthy person and you are paying a lot of money for a low deductible health insurance policy, then you are making the insurance company rich. Get more details on health savings accounts at IRS.gov. Purchase your HSA from a brokerage rather than from the insurance company. That way you have control over what it is invested in. HSAs are tax deductible. The capital gains earned are not taxed. The money works as a retirement plan if you don't have to access the funds. Remember that good health is the best health insurance, so focus on exercising and eating right, too.

A success story to be inspired by.
One of the richest women in the world, J.K. Rowling, received public assistance while she created one of the most beloved stories of all time -- 'Harry Potter.'

50 percent to survive allows you 50 percent to Thrive!

The Thrive Budget™ is outlined in greater detail in my book 'The ABCs of Money.' Check out my televised discussion of the Thrive Budget here.


Video Powered by Bank of America:


 

Follow Natalie Pace on Twitter: www.twitter.com/NataliePace

FOLLOW MONEY