Budgeting is a must, especially if you are trying to save up money to pay off debt, get that lovely house or purchase your first car; you need savings, and budgeting is the best way to do that. If this is your first time budgeting, many helpful reviews are written about the best finance companies to help you budget and save. In addition, companies such as MaxiFi Planner have software available to you that can help ease and guide you when it comes to budgeting and ensuring you are getting the most out of it.
The 50/30/20 rule
The 50/30/20 rule has become a popular budget plan to implement. The budgeting plan takes place after you have paid income tax. The rule essentially means that you allocate 50% of your income to needs, 30% to wants, and 20% to savings.
How to budget using the 50/30/20 rule
The 50/30/20 rule clearly states that each percentage pays for three specific areas, needs, wants, and savings. Firstly, 50% refers to your needs which are essentially any bills, groceries, insurance, house payments, car payments, utilities, and any other expenses. The 30% refers to wants, such as new clothing, going out for dinner, seeing a movie, or essentially anything you want to do that month. Lastly is the 20%; this is any leftover money you either use to pay any debts loans or put into your savings account.
How to calculate monthly income and expenses
While the 50/30/20 rule seems simple enough, some individuals may still find it unclear how to calculate their monthly income and expenses. Hopefully, this will provide some insight. Many individuals receive payment weekly, which can be challenging when calculating your monthly after-tax income. If you receive payment weekly, take that amount and multiply it by 52 (the number of weeks within the year) and then divide by 12 to get your monthly income after-tax. If you get your paycheck bi-weekly, take your one paycheck and multiply it by 26 (the number of paychecks you will receive over a year) and divide it by 12 to obtain your monthly income after-tax. The next step is to list all of your expenses and categorize them as either fixed (car payment, utility bills, rent, etc.) or variable (gifts, going for dinner, etc.). Once ranked, compare your expenses with your income and use the 50/30/20 rule to budget.
Helpful budgeting tips
When it comes to budgeting, one can go extreme, from not spending anything to spending everything. Hopefully, these tips will help you find common ground. Firstly, do not confuse a luxury need to be a necessary need. For example, everyone needs to eat; however, you do not have to eat out every night or go to a 5-star restaurant. Secondly, buying a coffee or muffin throughout the week can add up to quite a bit at the end of the month, so become observant of those little expenses. Thirdly, even if you have received a salary increase, it does not mean you have to go out and purchase an expensive car or any unnecessary item. Lastly, ditch the convenience of using a credit or debit card and use cash instead.
Everyone has to budget. However, always keep in mind that you do not have to do it alone. Many sources and companies can help plan a budget that fits your lifestyle perfectly while still saving a nice amount at the end of the month.