Budgets are more than just paying your bills on time. A budget helps you to make sure you will have enough money every month. Without a budget, you might run out of money before your next paycheck. The word “budget” like the word “diet”, is associated with negative thoughts. Budgets and diets are viewed as restrictive reminders of things we cannot have, and things we should avoid. More than that, a budget like a diet is a tool. If tools are used properly, they lead to the outcome we desire. You use a diet to develop a healthy body, thus you can use a budget to develop financial health. One of the most important things about dieting is having a plan. You select what to eat, where and how much. The more detailed you are and the more you follow it religiously, the better the results you will have. Budgeting is exactly the same. Drop the negative word “budget” and start to call it “spending plan”. Do not view it as a restrictive plan, think about the marvellous things you will be able to buy/achieve if you stick to it.
Paleo diet. Atkinson diet. Juice diet. The fast diet. Those are just a few of the many diets you can follow in order to get in shape. They share common traits and most have contradicting rules. When to eat, what to eat, what not to eat and so on. However, they all share one common thing, which is, if you desire results you must stick to the plan, you must consistently follow the rules for a set amount of time. Your weight, body fat percentage, waistline, energy, BMI,…, are all measurable outcomes. Having tried them all, I am personally fascinated with the fast diet. After watching a brilliant BBC documentary, titled “Eat, Fast and Live Longer”, a light switch came on. I was (am) overweight and wanted to lose weight. The fast diet had two simple rules: you eat normally five days a week, then for just two days you cut your calories (500 for women, 600 for men). I started the very next day, and over a period of 6 months, I managed to lose 15 Kg. Everything looked great: my body, my health, my confidence. Then I started to break the rules and did not stick to the original plan and put back 10 kg.
As soon as I started earning my own money, I decided to make my own spending plan. Reminded of my dieting experience I started following those 3 simple rules: 50-30-20.
No 1. 50% of my income goes to living expenses and essentials. This includes rent, utilities, and things like groceries and transportation to/from work.
No 2. I use 30% of my income for “flexible spending”. I live in Singapore and it is an amazing place to explore. I like to read, travel and I awkwardly try to have a social life.
No 3. 20% of my income goes towards my financial goals.
When I first started my spending plan, my financial goal was to pay off my student loan. The percentage of my income I set aside towards that was over 40%. As I started to earn more, goals changed and so the percentages. As I paid off my student loans, I started saving and eventually investing. However, I never went below 20%.
You should keep in mind that the percentages for essentials and flexible spending are the maximum you should spend. If you are just starting your spending plan, figure out what’s currently happening with your finances. First, look at your paycheck to determine exactly how much money you earn each month. That number is your income and what you need to base the 50-30-20 rule. (If you’re self-employed be careful to track your earnings and understand your average income per month so you can budget accordingly.) Next, track your spending. Keep up with every single cent goes out from your pocket, from rent to coffee. Then divide your spending into one of the three categories: essentials, flexible spending, and financial goals. From there, you can start adjusting your spending plan, ensuring you are into the 50-30-20 rules.
You don’t need complicated spreadsheets with countless spending categories, and you don’t need to be a financial expert to understand how much money you can spend. You simply need to follow the 50-20-30 Rule. The 50-30-20 work because it keeps your personal finances simples. You can pay your bills, add funds to your savings and have the freedom to use the money for fun without feeling guilty about it. It is a great starting point for someone who is new to a spending plan. The 50-30-20 rules offer you flexibility. You can bend it by altering the percentages to make it work better for you. The main aim is not keeping the exact percentage breakdown, the key is to take action and use a system to help you stay consistent in managing your money every month, making sure you’re covering your expenses, being responsible by saving for tomorrow, and giving yourself some room to enjoy life today. The actions steps are clear and this makes it much more likely that you will stay the course over time, ultimately reaching your financial independence.
How has the 50-20-30 Rule worked out for you? Share your experiences in the comments, or drop me a line
For more http://ift.tt/2mgYr3s
Submitted March 10, 2017 at 11:34PM by dinobuosciolo http://ift.tt/2mweD0z
