Many people use the 50/30/20 budgeting rule where you allot 50 percent of your after-tax income to “needs,” 30 percent to “wants” and 20 percent to savings and debt repayment, but Sharon Epperson doesn’t follow this traditional rule. A CNBC senior personal finance correspondent and host of “Retire Well,” Epperson covers the many facets of how people manage, grow and protect their money — and she lives by a different set of rules.
Click to find out how Epperson’s personal experiences have shaped her own plan for retirement.
What is your money mantra?
My No. 1 budget commandment is “Thou shalt pay thine own self first.”
Before achieving financial success, what was your biggest obstacle? How did you overcome it?
My biggest obstacle to achieving financial success was figuring out how much money I should be saving. I decided to dedicate a percentage of my paycheck to various goals and created separate savings accounts to stash money away. I started putting 20 percent of my pay into my 401k/retirement accounts and 10 percent into short-term savings. Some months the percentages might be a little lower, but for the most part, I still stick to those goals.
What advice would you give your younger self about money?
“If you don’t see it, you won’t spend it.” Having money automatically directed from my paycheck to a savings account that isn’t tied to my checking account has prevented me from easily dipping into my savings to buy something that I probably don’t really need.
What is the best piece of advice you received along your financial journey?
When I was researching my book, “The Big Payoff,” I read an article by financial writer Richard Jenkins outlining a budgeting strategy called “the 60 percent solution” — it’s now a mantra that I follow in my own financial life. Limit “committed expenses” like taxes, essential household expenses, rent/mortgage, utilities, phone, basic food, transportation, clothing, insurance premiums and other recurring bills to 60 percent of your gross income.
After adopting that, I was able to put 20 percent of my pay towards long-term savings — including at least 10 percent to my 401k — and 10 percent to short-term savings. The final 10 percent is “fun money.” My husband and I still find time to use our “fun money” on vacations, dining out and going to the theater. At times we may wish we had more of that “fun money,” but the strategy works. It’s helped us juggle purchasing and maintaining a home and raising two kids.
What is the best thing you did to boost your retirement savings?
The best thing I did to boost my retirement savings was to contribute the maximum amount as often as possible — and to save extra money for retirement when I had it in a non-deductible IRA (or SEP IRA when I had self-employment income).
Click to read Epperson’s retirement column.
Is there a tool or tactic that has been the most valuable to you in your own retirement planning experience?
I try to boost my contribution rate by 1 or 2 percent every year.
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