Heading into 2021, I am sure all of you are motivated and ready for a fresh start towards achieving your better self. I will be sharing some budgeting rules that all people should follow in order to achieve their financial goals in 20021. Make sure to read this article closely so that you can be smarter in planning your budget.
50/30/20 Rule
This method works for you regardless of your income level and you should also minus off your taxes before applying this rule. This is rule is as simple as allocating your money into 3 sections. 50% for needs, 30% for wants, and 20% for savings and debt repayments.
It is always good to plan out your money such that you will keep in mind how much money you have for this and that and helps you to monitor your spending as you will be more careful to try not to exceed your spending in each section.
20%, Savings, and Debt Repayments
This section is the most important in my opinion and this should also be the very first thing that you do once you get your income every month. You should always pay yourself first, put your money into your savings once you get your paycheck so that you will not touch it at all. This way, you are ensuring that you save some of your money every month and it will build up nicely over time.
There are so many people that always think that they can save money after spending on things that they need and want. But the fact is that they will fail as we will never have any “leftovers” after spending. This is why a lot of people struggle to save money as they are not paying themselves first.
If you are in debt, be sure to include them in this 20% of your salary as well. This is so that you would not forget about the repayment dates and this helps you to avoid late charges. It is very important to pay your loans on time as you do not want any ridiculous interest amounts!
30%, Wants
After working day to day for months and months, I am sure that you guys will want to reward yourselves and treat yourself to a good meal or even buy some fancy clothes. Yes, you can do that with 30% of your salary, life is short and you should do something if you feel like it is going to make you happier. But do keep in mind that you should make sure that you keep it within your 30% as you do not want to affect your needs and savings.
I would say this 30% should be a “luxury” that you enjoy last after planning out your expenses for the month. Only after you figured out your bills, debts, savings, and other expenses then you should touch this 30%. This is to ensure that you have enough money for all the things you have to pay to survive.
Examples of Wants:
- Entertainment (Netflix, Spotify, Movies, etc)
- Non-grocery items ( Restaurants and bars, Coffee)
- Charity
- Gifts
- Home upgrades (Furniture, Decorations)
- Gym Memberships
- Shopping
- Traveling
50%, Needs
This is the part where most planning has to come into place. You have to learn to allocate money into different parts of your life that you must spend every month. As an adult, there are a lot of commitments such as rental, utility, phone bills, transport, and food. All these have to be factored into needs as there are costs that you cannot avoid and you have to ensure that you have the money to pay for these expenses.
Examples of Needs:
- Rent or Mortgage
- Utility Bill
- Phone Bill
- Transportation expense (Including car if you have one)
- Insurance Costs
- Medical Care
- Grooming Essentials (Haircut)
Are you up for the plan?
You have to take more pride and responsibility in planning your expenses in order to plan out your budgets. A lot of people are confused about wants and needs, do read on my previous article and it will help you to identify them. If you are able to follow this budgeting rule, you will find your savings growing really steadily by the end of the year.
