Lets talk about the 50/30/20 budgeting rule and budgeting in general today, obviously I am not a professional financial advisor but even a “Dump man can give a wise man counsel.” So I am going to give you some free tips on budgeting that work. I hope you can relate – anyways lets dive in to it then – So what is budgeting? Are you familiar with the 50/30/20 rule?
Budgeting
Simply put, a budget is a spending plan based on income and expenses. It estimates, roughly, how much money will be spent and on what, by when. This post will walk you through the 50-30-20 rule, which is a budgeting technique that helps you stay aware of your finances, limit your spending, and enhance your savings.
We will also talk about other budgeting hacks, the ideal times to budget and considerations to make when getting to it.
50/30/20 Budgeting Rule
The basic idea of this budgeting technique is that you put 50% of your income (after tax) towards your ‘needs’. These include things like mortgage/rent, utilities, and groceries. 30% goes towards your ‘wants’ i.e., all the fun things that, while not necessary, bring joy into your life. The reaming 20% percent is allocated to your savings/financial goals! Like paying off debts and investing. Do you make use of this rule of thumb?
Nonetheless, like many formulas, this practice is a tried and tested method that has clearly worked for generations of financially woke people.
It basically dictates that the best approach to budgeting is to utilize 50% of the income, (post tax deductions), on needs, 30% on needs and 20% goes to savings or loan payments.
To be honest, this approach works well for the elite and somewhat for the working class, but unfortunately, for low income persons (and families, since funds are usually pooled together to sustain the entire family unit), this doesn’t work because there is barely enough to cover the needs, albeit the wants and savings, which are practically an unattainable luxuries.
Budgeting Hacks
Pragmatically speaking, it’s important to cover debts first before you take your crush out for ice cream. It’s also imperative to intentionally discipline yourself into sticking to the plan and maintaining that. For small-scale budgeting like house groceries, make a list of things to get, so you don’t end up a couple of hundreds over the budget and feeling guilty for buying that extra tub of frozen yoghurt and- do you even really like it like that? Wait, this probably means you’re an actively impulsive buyer when you get into the store, right?
The solution is simple, DON’T GO! In today’s world of computers, order your goods online and have them delivered to your doorstep. This way, you’re not tempted to buy anything extra, because if experience has taught us anything, its that the impulse to buy unnecessary things is more intense when you’re physically surrounded by these “luxuries” in the shop.
A big problem with budgeting is the discipline of sticking to it, so, for the love of…whatever, have an accountability partner. This is someone who you talk to about your financial aspirations, and they pull you back when you go astray, by reminding you of where you want to be and how your deviations are not reflective of efforts to get there.
Ideal times to budget
Literally, always! “Never be caught off guard” is something a friend says a lot to me.
The one aspect of your life you do not want to be caught off guard is finance. There is nothing more frustrating than having plans all month long, when you’re broke, finally getting money, stepping outside the house and coming back 2 hours later with unachieved plans and 50 shopping bags. Long story short, mentally prepare yourself to handle money before you receive it by budgeting in advance, always.
What to Consider when budgeting
The smartest thing is to classify the items on your list as needs, wants and luxuries, or what I like to call a “definitely, maybe & most likely not” list.
Second, try to remember when different shops have special deals going on and make purchases during that time, this not only saves you a pretty penny, it also ensures that you are well below your budget estimates. After all these, its important to track the progress of your budgeting escapades by comparing the price on the budget with the actual amounts spent.
Conclusion
When all is said and done, reward yourself for good behavior.
Congratulate yourself for sticking to your budget by treating yourself to something you’ve been wanting for a while. The idea is to train yourself (like a dog), by giving yourself a treat for mastering a cool trick like sticking to a budget and making it work. Congratulations, you are now ready to tackle your financial hurdles…mostly.
Now go out there and be a financial badass! Check out our article on Financial Literacy vs Financial Ability
