Dividing income among your needs, your wants, your savings and debts can be difficult. In this article we are going to cover every aspect of budgeting your income thus helping you save some serious money.
Divide your income among specific needs, your wants, your savings and debts, using the 50/30/20 budget.
For example, paying for housing needs, insurance, health loans, food, electricity bills, education loans and debts with a small amount of income. It’s a lot to cover with a small income. How can you enjoy the rest of the money without running out? Covering a lot of things with limited money is a zero-sum game. The answer is- by making a budget you can save money later for your purpose.
What is a budget?
A budget is a calculation or estimate of total revenue and spending for a specific time.
Here are some tips for budgeting in your daily life:
Choose a budgeting system, calculate your monthly income, and track your progress.
As an example, consider the 50/30/20 rule.
Set aside 50% of your money for your requirements.
Set aside 30% of your money for wants.
Set aside 20% of your salary for loan and debt repayments.
If you receive a monthly and consistent payment, the amount you receive is likely the final check; however, if you have savings, debts to pay, health loans, insurance, and so on, add those to obtain a genuine picture of your savings and costs. If you have additional source of income, such as side employment, lowering your taxes and company expenditures may be beneficial.
Here's how you can calculate your income after tax :
2. Develop a budgeting plan :
It is not an easy task to prepare a budget plan and not everyone is capable of it. An adequate plan must address all your needs, your wants, as well as any future savings you want. A zero-based budget system and budget enveloping are two of the budgeting techniques.
Here's how can easily create a budget plan on MS EXCEL :
3. Keep track of your progress
Despite the fact that there are multiple ways for you to check your progress, you can check your progress with online budgeting and many other tools. Using these tools, you can see how, when, and what you have to spend money on.
Here's an elaborate video on how to track your expense :
4. Automate your savings :
Your allocated money, which you have set aside for specific needs, arrives with your little efforts on your part. The accountability of an accountable partner or support from an online group can also help, so you're held accountable to follow your budget.
Learn more about automating savings :
5. Following a simple budgeting plan.
Many people follow the popular budget rule called 50/30/20 to Maximise their money. Spending 50% roughly on after-tax bills on personal needs, not more than 30% on wants and at least 20% on savings and debt payments. To the people who follow the plan, in a long term, they’ll learn to have manageable debt, little place to indulge themselves and saving up to pay the expenses and retire from their job comfortably.
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1. Let's go in detail about the 50/30/20 budget rule:
Suppose your income is Rs 50,000. Your 50/30/20 are as follows You spend 25,000 on necessities, 15,000 on your wants and 10,000 on your debt repayments and loans.
(A) Allow up to 50% of income on your personal needs :
Your need after-tax should include- groceries, furniture, banking, child care, insurance etc. when the essentials are overshot to 50% of the income on your mark, your next step is needed to dip into “wants” for a while. You’ll need to adjust your spending on this. Even though your essential requirements fall under 50%, readdressing these fixed expenses sometimes is smart. You any find a lucky chance to buy less expensive car insurance, mortgage loans or even find a good and better mobile plan.
(B) Keeping another 30% income on your wants :
A person’s wants are everything that makes sense for his survival which he can consider his luxurious life as well. Wants also include expenses that add up to a person’s life and make it less depressing. Some want expenses to include - gym membership, OT platform subscription, going out, shopping, going on holidays etc., a person can spend less on his individual wants and can have cheaper choices like buying expensive watches over simple ones, buying imported cars over normal cars. If an individual spends more than 30% income on his wants, he can look for the other expenses to cut off But In the 50-30-20 budget rule, what to be kept in the mind is that it does not disagree with the enjoyment a person will have. But it’s a method that gives a person to check on his expenses and his overspending habits, it controls those habits and makes the person more accountable. This method looks after for
(C) Keeping another 20% on savings :
While the person’s wants and needs take good care of them in the present self, the money in this particular category takes care of the future self of the individual. This tool looks after the first self of the individual where he needs to look aster if he does not have a proper job or gets bedridden. This method will let him enjoy the free level of lifestyle which he may be presently living. Savings in this method might include - Emergency funds, tax payments, stocks, loan payments etc., This helps a person to buy long term goals like children's education, buying his/her owlet house, retirement funds etc.
Following this rule comprehensively will allow you to not only save money but also invest your money wisely, resulting in compounding. In other words, your money will accrue huge gains in years to come over time as it will multiply.
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