Budgeting
Most people get paid on 1st and the 15th of every month so your money has to last until you are paid again.
That’s where budgeting comes in.
What is a Budget?
A budget is a chart that shows how much money you can spend and where you plan to spend it.
Spending
Budgeting is an important part of spending.
It informs you of the money you have to spend
It stops you from spending past that amount
It helps you save you money
Without a budget you will spend beyond your means (meaning you spend more money than you have available).
Needs versus Wants
There are 2 categories of where you spend your money.
Needs: Wants:
Monthly rent -Dining out
Electricity and gas bills -Clothes shopping
Transportation -Vacations
Insurances (for healthcare, car, or pets) -Gym membership
Minimum loan repayments -Entertainment subscriptions (Netflix, HBO, etc)
Basic groceries -Groceries (other than the essentials)
How will you balance paying for needs and wants each month?
50/30/20 Rule
This is a simple way to budget your money.
The idea is that you divide your monthly income into three categories:
50% for needs
30% for wants
20% for savings
With only three major categories to manage, you can save yourself the time and stress of digging into the details every time you spend.
Not Set in Stone
For example, if you need to you can spend more money on needs you can.
NOTE: If you need money, take it first from the amount you allocated for wants - it is more important to continue saving.
The less you spend on wants the more you can save BUT…
Remember: Wants are important too — you have to have some fun / do activities you enjoy.
You Have to Save
But it is hard to save when you think you have money to spend.
If you see the money you think you can spend it so by creating a separate account that automatically takes the money from your paycheck you can help with the temptation.
-With technology this is not difficult to set up
If the money is out of sight it is also out of mind and you do not need to worry about spending it.
Budgeting can be easy and simple
Using the 50/30/20 rule will save you time, stress, and energy.
