Rachel Cruze: Here’s How To Budget $7,000 a Month
Budgeting is a common challenge with personal finances. Whether you’re a low-income or high-income earner, or somewhere in between, getting your budget right can be tricky. Personal finance specialists offer different strategies and tips for improving your budgeting.
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Rachel Cruze, an author and financial expert who walks viewers through her approach to budgeting various amounts, dedicated an episode of “The Rachel Cruze Show” to budgeting $7,000 monthly. Here’s how she would manage this amount.
7 Baby Steps
Cruze started by going through Dave Ramsey’s “7 Baby Steps,” a seven-step plan for money management:
Save $1,000 in an emergency fund.
Pay off all debt except your mortgage.
Save three to six months’ worth of expenses in your emergency fund.
Invest 15% of your income toward retirement.
Save for your children’s college fund.
Pay off your mortgage early.
Build wealth and give.
She looked at a specific couple’s $7,000 monthly budget to see which step they were at on this list. This couple had completed Steps 1, 5 and 6 but had yet to complete Steps 2, 3, 4 and 7. Therefore, Cruze determined that they were still at Step 2. That said, she credited them for being ahead of the game since they had already paid off their mortgage and paid for their children’s college educations.
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Her $7,000 Monthly Budget
Cruze approached the couple’s budget with the goals of paying down debt and saving for an emergency fund.
Retirement Savings: $0
The couple invested $100 per month toward retirement, but Cruze’s first change was eliminating that. She said, “I would nix that because if you’re each contributing, then that’s $100 that could be going toward paying off debt.”
She advised them to pause their retirement savings until they eliminate their debt. At that point, they should redo their budget to put money toward retirement.
Emergency Fund Savings: $25
Twenty-five dollars went toward emergency fund savings, which Cruze did not change.
Housing: $886
The couple’s existing budget included $240 for home cleaning. Cruze also removed that.
“Remember, in Baby Step 2, you are squeezing out every dollar that is possible,” she said. “So for me, I’m taking out home cleaning.”
She further eliminated the $175 monthly charge for pool cleaning. Her reasoning was, “I know that pool cleaning is important, but what I’m going to say is I would do as much as I can on my own.”
The couple also spent $150 monthly on lawn maintenance, but Cruze took that down to $0. She used the same approach when saving for her own home with her husband. In her experience, “We cut everything, and he mowed our yard, did it all.”
Cruze didn’t change the $330 allocation for electricity, $90 for water and sewer, $16 for air-conditioning maintenance or $450 for property taxes. This couple’s monthly housing budget may seem low because they had already paid off their mortgage.
Transportation: $700
Cruze budgeted $200 monthly for auto gas and oil. The couple also spent $500 on a car lease, which she didn’t touch.
Food: $500
The couple had previously budgeted around $570 for groceries and $140 for restaurant food. Cruze acknowledged that the grocery budget “feels about right” for two people. Still, she brought the grocery bill down to $450 per month, saying, “Let’s see if we can do this.”
“Rice and beans — beans are rice, people,” Cruze said. “We are cutting stuff; that’s our goal.”
Once again, her budgeting advice is to cut expenses wherever possible, including groceries. If you purchase cheaper foods like rice and beans, you’ll have more money for other priorities in your budget.
Unsurprisingly, she also reduced the couple’s restaurant budget. She budgeted $50 for one run to a fast-food restaurant during the month. Her explanation was, “We say you shouldn’t see the inside of a restaurant unless you’re working there on Baby Step 2, but I’m going to give you a little grace on that.”
Personal: $120
The couple used to spend $245 monthly on personal grooming. Cruze reduced that by more than half, to $120. She recommended “finding someone that’s just starting out” to style their hair as a cost-saving measure.
Insurance: $734
The budget included two types of insurance, life and auto, for a total of $735. Cruze did not adjust these figures.
Giving: $215
Cruze also didn’t change the couple’s $215 monthly donation budget.
Debt Payments: $3,926
Since the couple was in Baby Step 2, Cruze recommended making the minimum payment on all of their credit cards except the one with the smallest balance. This is known as the debt snowball method. Of all their debt, the couple’s smallest balance was around $1,000. Cruze immediately budgeted toward paying that off entirely.
“One credit card — just by cutting expenses — is knocked out,” she said. “So boom, this one is going to be paid off.”
Then, she moved on to the next-smallest debt, putting all the money remaining in the budget toward that balance, but it wasn’t enough to pay it off entirely. Later, she went back to add a $100 buffer just to leave some breathing room in the budget.
As you can see, Cruze budgets almost half of the couple’s income toward debt repayment, making it by far the largest spending category. This reflects her philosophy of prioritizing your debt before other types of spending.
Budgeting Tips and Takeaways
It may be hard to replicate the budget Cruze set here if you’re not in the same situation as this couple. Still, there are some tips you can apply to your own budget.
Save, Save, Save
Save money wherever you can when you’re trying to pay down debt. Cruze says you should avoid unnecessary expenses, like home cleaning, lawn maintenance and pool cleaning, while tackling debt. It might be uncomfortable, but eliminating those items from your budget will help you pay off your debt faster.
Add a Buffer
Even the best budget isn’t perfectly precise. After budgeting all of the couple’s income, Cruze still added a small buffer of $100. If anything is slightly more expensive than expected, this wiggle room will help you cover the difference.
Consider Increasing Your Income With a Side Hustle
Cruze also suggested starting a side hustle to increase the amount of money you have available. She took the added income and put it toward paying off debt faster. The more money you earn and save, the more you have to eliminate your debt.
Final Take
Cruze’s budgeting advice may help people who want to eliminate their debt but don’t know where to start. She demonstrates the power of cutting costs wherever possible.
When creating your own budget, consider paying off your lowest debt balance first. It’s a relief to clear away that debt. Then, keep chipping away at the rest until you’re debt free.
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This article originally appeared on GOBankingRates.com: Rachel Cruze: Here’s How To Budget $7,000 a Month
