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Yesterday, you crunched your numbers and found out if you were living below, above, or at your means.
You might have realized that you are spending too much money on ______________ (fill in the blank).
When you know what’s happening on a monthly basis, you have the power to change your budget.
Here’s some help for those of you who want to have a more balanced budget, one that allows you to meet all of your needs, a lot of your wants, and still save.When you know what’s happening on a monthly basis, you have the power to change your budget. Click To Tweet
Choose one of these guidelines if you are looking for a place to start. Tweak any of these guidelines
But here are 3 different budget guidelines that will help you decide how you want to adjust your spending on wants, needs and savings.
Rule 1: 50:30:20 Rule: The 50:30:20 Rule is not mine though I love it. Senator Elizabeth Warren and co-author Amelia Warren Tyagi created this formula as a financial rule of thumb in All Your Worth: The Ultimate Lifetime Money Plan
- 50 percent of your gross monthly income goes to your needs.
- 30 percent of your gross monthly income goes to wants.
- 20 percent of your gross monthly incomes goes to savings/investing.
As a rule of thumb, can be a great place to start, but not necessarily stay when it comes to taking care of your money. You can need to adjust the ratios up or down depending on your specific financial reality at that time.
Rule 2: 70: 15: 15 I came across this ratio while reading Rich Bitch: A Simple 12-Step Plan for Getting Your Financial Life by Nicole Lapin. She uses the 3E rule to budgeting.
- 70 percent of your gross monthly income goes toward essentials (housing, food, transportation,
- 15 percent of your gross monthly income goes toward your endgame (retirement, savings)
- 15 percent of your gross monthly income goes toward your entertainment or extras. With this strategy, make sure that you pay for all of your entertainment in cold, hard cash so you can avoid racking up tacky (yeah, I called unnecessary consumer debt “tacky”… because it is a sight for sore eyes) credit card debt.
Rule 3: Guidelines: Here are general guidelines for a healthy budget endorsed by many in the personal finance niche.
- Housing 35% – This includes mortgage, rent, taxes, repairs, improvements or renovations, insurance, utilities, and any other expenses pertaining to the maintenance and upkeep of the home.
- Transportation 20% – This category includes monthly car payments, gas, oil, repairs, insurance, parking, and public transportation fees.
- Debt 15% – Basically any debt except your mortgage and car payment should be placed into this category including credit cards, personal loans, or student loans.
- Personal Expenses 20% – Here you h ave all additional “cost of living” expenses such as food, insurance, prescriptions, clothing, entertainment, dental, medical, prescriptions, or any other miscellaneous expenditures.
- Investments & Savings 10% – This category includes stocks, bonds, savings, retirement plans, rental properties, or artwork.
The Rule of Thumb for Rules of Thumb
Now for some real talk about rules of thumb. They are just that: shortcuts that can work in a lot of cases, but not in all. If you know that you’re goal is to eliminate debt, than you can increase the percentage that you put towards your endgame by 20, 30, 40 percent or more.
If you know yourself to be a bit of miser and see parts of your life that would benefit from consistently spending money on personal or career development, then you may have to loosen up your saving percentage goals.
Share in our Happy Finances Community, which rule of thumb you used and why. Label it Day 17: My Favorite Budget Shortcut
That’s it for today’s lifework!
Also, leave a comment below with your “aha” moment or reach out to your accountability partner(s) for questions and insights.
Finally, hit me up and share your insights. I’m cheering you on.
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