There are several budgeting techniques and it makes the process of choosing which one works best for us a bit overwhelming. So, my goal is to explain the several existing methods, in order to make your decision slightly easier.
I also have a Beginners guide to the “cash envelope” system, if you want to learn a bit more about it.
The 50/30/20 categories
50%- corresponds to every need you have throughout the month. These needs might be rent/mortgage, utilities, groceries, car payments, etc.
30%- corresponds to your wants. For example clothes, memberships, subscriptions, dining out, etc.
20%- corresponds to your savings.
How to budget according to this system?
1.Figure out the exact amount you can work with
I always start with this step in all my budgeting posts but trust me, this is crucial in for you to succeed at it. You need to know the amount that is left after deducting your taxes, social security, etc.
2.Calculate the amount for each category
Income (step1) * 0,5= Needs
Income (step1) * 0,3= Wants
Income (step1) * 0,2= Savings
These will be the exact amounts you’ll be able to spend on each category.
Tip: try to stay under budget in the needs and wants categories, that way, you will be able to add more to your savings. Enabling you to create future investments, savings account, an emergency fund or even pay off any debt quicker.
Feel free to adjust the percentages if you think that will benefit you. Overall, it’s a really good method to start a budgeting journey and increase your savings.
Thank you for reading it, and I’ll see you in my next post.