Most people don’t create a budget because they think it’s tiresome and limits how they spend their money. COURTESY
Budgeting is the key to proper money management. Most people don’t create a budget because they think it’s tiresome and limits how they spend their money. In reality, budgeting is useful for tracking your income and expenses. Forget the bad rap you might have heard about budgeting. You don’t need a strict budget to achieve your financial goals. It’s possible to be on a budget and still have a little fun from time to time. It’s easy to get lost in your finances. Below are the steps on how to create a budget and learn better financial management for beginners.
The 50-30-20 budget rule
Already you know the basics of how to create a budget, the next step is to know how to reach your financial goals. Below is a guide on how to use the 50-30-20 budget rule to reach your financial goals faster.
Spend 50% of income on your Needs
The 50-30-20 budget rule states that you should limit your needs to 50% of your after-tax income.[1] These include all your monthly expenses—fixed, variable, and non-essential expenses.
You should determine all the expenses that you deem “needs.” In most cases, they’re the ones you necessitate. Forgoing them has significant impacts on your life. For instance, housing, utilities, and groceries fall under the category of needs.
Spend 30% of on your Wants
Your wants are the things you desire, but you can live without them. Don’t start thinking about trips, high-end restaurants, and beautiful clothes yet. You may want to fix the “little things” that bug you before you go into luxury.
How about repainting your house, doing cosmetic repairs to your car, or upgrading your home Internet? The list goes on. You only have to picture your situation and find out what your meaningful wants are.
Spend the remaining 20% on Savings and debt Payments
The least percentage of your after-tax income that should go toward savings and paying debts is 20%. You shouldn’t only allocate the amount that remains at the end of your budget to these purposes. If any extra cash comes up after you’ve applied the 50-30-20 budget rule, put it into savings and debt payment.
Bottom Line
Budgeting is a financial habit that comes with many benefits. One of the best benefits of budgeting is that you get a chance to take control of your finances. With proper money management, you can be debt-free, pay bills on time, and save more money. Now that you know how to create a budget, you better start making one!
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