One of the most popular budgets used is the 50/30/20 budget, which is based on your take home income. This budget allows for 50% of your income to go to necessities such as housing, electricity, groceries etc, 30% to discretionary items such as entertainment, dining out, a new cell phone, and 20% towards savings or debt repayment.
The main problem with this type of budget is that it can be difficult for someone to decide what is a want and what is a need. For example, bread and milk are needs, ice-cream is a want. Not many people want to classify and track their spending this way or in fact any way at all, to them budget is a word to be avoided.
An alternative to this type of budgeting is the 80/20 plan. If you use this budget, you put 20% of your income towards savings and spend the other 80% any way you want, and you don’t have to do any expense tracking. It is recommended that you save the 20% in a different bank to the remainder of your money so that you are not able to see the balance when you log into your regular account and are therefore not tempted to dip into it.
Although it sounds wonderful to have 80% of your income to “spend as you wish.” In reality you need to set aside money for your needs such as groceries, rent, utilities and loan or credit card payments before you start to spend as you wish or you will quickly find yourself in trouble or running out of money before the end of the month.
If controlling your spending is a problem think about using the envelope method to set aside money for items such as groceries and gas and setting up direct deposit payments for regular bills such as car, life and house insurance, tv and internet service and cell phone. That way everything is already deducted from your 80% so you can see the true amount that you have left to spend.
If the amount that you have to spend on wants is not as much as you would like, look at ways in which you can reduce your needs. For extra income you could also consider taking on a second job for a while. With a few months of practice in budgeting your money you will get used to living a lifestyle that is in line with your income and your savings account will be growing nicely.
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