Ok, now that we have established the basis for a budget, let's start getting a bit more detailed.
Take your basic income minus expense budget that we discussed in the last post (which incidentally is exactly how the government works; except the crazy thing with them is they try to make sure they spend every dime of income they receive; i.e. "balance the budget"--sound crazy to you too?), and let's take a closer look at it.
Again, I realize that there is a lot of information out there regarding budgets and budgeting tips; realize this: everyone is different so everyone's budget should be different.
That being said, there are a few rules of thumb that I think are important to follow, and today we are going to look at the first:
It's called the 50-30-20 rule. It breaks down like this: fifty percent of your budget should be dedicated to "needs", thirty percent to "wants", and twenty percent to "debt". So, you can call it the 50-30-20 rule or the "Wants, Needs, Debt" rule. Take a look at your expenses (which should be easy because you have that handy list of expenses for your last month nearby!) Now, place each expense into one of those three categories (Wants, Needs, Debt). This may prove difficult, as "wants" and "needs"can become very confusing; so to help let's break it down like this:
First we have needs, simple right? What you need to get by right?
A place to live, food, clothing, transportation, insurance, iPhone, Starbucks, TV...
Hold it! Do you really need a cell phone, cable/satellite TV, or Starbucks?
Cell phone? Maybe. I would argue that you do need a phone, and as I do not have a home phone (i.e. land line) I would argue that I need my cell phone; however I do not need text messaging, mobile internet, or a new ring tone every two weeks. So, break that down with your monthly plan (i.e. $39.99) as a "need" and the little extras you pay for as "wants".
I'm not even going to touch the Starbucks (if you think it's a need then you probably should leave now, and never return...I am serious....why are you still here?...fine, have it your way...).
Regardless of how you want to argue it, cable/satellite TV is not a "need"; you could live without it, so place it in the "want" category.
Needs are best described as true necessities:
Rent/Mortgage (homeowner's fees, insurance)
Health insurance (if it isn't deducted from your check)
Utilities (electricity, water, sewer, etc)
Groceries (again, double stuff Oreos are more of a want, but I digress)
Transportation (car+gas+insurance/mass transit or however you get around--hovercraft anyone?)
Clothing (dry cleaning/replacing what wears out, not shopping sprees to Saks!)
Credit Card/Student Loan/etc minimum payments (yes, if you don't believe me try not paying them!)
What are wants then? Why everything else of course! (Include eating at restaurants here, unless you are required to eat out...yeah, not too many can claim that; so most meals at a restaurant are a "want".)
Great, we have taken care of that; let's see we've got: Needs-check, Wants-check...oh yeah, the "D" word. Debt.
Debt can be summed up as this, anything you pay on a loan above the minimum amount due. What's a loan? Well, for starters: mortgages, student loans, car loans, personal loans, credit cards...wait, a credit card is a loan? Yep. It's nothing more than a short term loan. (albeit at a great rate for the first 21 days!) So, if you have a balance on a credit card, it's a loan. If you have been paying extra on any of your loans it goes here; if not, it's okay--we just have more work to do.
Now, just in case there is someone somewhere out there, some fiscally responsible person who amazingly has no debt whatsoever; what are you doing reading this blog? Wait! I'm kidding!
I have one thing to say to you: Way to go!
Now, what to do with your twenty percent? Well, my suggestion would be to take half of it (ten percent) and start putting it into savings; either for retirement or just into an interest bearing account (even if it is only paying two-three percent).
The other ten percent? Have fun! Do whatever you like with it! You earned it! (which should be everyone's goal!)
Until next time...
Take your basic income minus expense budget that we discussed in the last post (which incidentally is exactly how the government works; except the crazy thing with them is they try to make sure they spend every dime of income they receive; i.e. "balance the budget"--sound crazy to you too?), and let's take a closer look at it.
Again, I realize that there is a lot of information out there regarding budgets and budgeting tips; realize this: everyone is different so everyone's budget should be different.
That being said, there are a few rules of thumb that I think are important to follow, and today we are going to look at the first:
It's called the 50-30-20 rule. It breaks down like this: fifty percent of your budget should be dedicated to "needs", thirty percent to "wants", and twenty percent to "debt". So, you can call it the 50-30-20 rule or the "Wants, Needs, Debt" rule. Take a look at your expenses (which should be easy because you have that handy list of expenses for your last month nearby!) Now, place each expense into one of those three categories (Wants, Needs, Debt). This may prove difficult, as "wants" and "needs"can become very confusing; so to help let's break it down like this:
First we have needs, simple right? What you need to get by right?
A place to live, food, clothing, transportation, insurance, iPhone, Starbucks, TV...
Hold it! Do you really need a cell phone, cable/satellite TV, or Starbucks?
Cell phone? Maybe. I would argue that you do need a phone, and as I do not have a home phone (i.e. land line) I would argue that I need my cell phone; however I do not need text messaging, mobile internet, or a new ring tone every two weeks. So, break that down with your monthly plan (i.e. $39.99) as a "need" and the little extras you pay for as "wants".
I'm not even going to touch the Starbucks (if you think it's a need then you probably should leave now, and never return...I am serious....why are you still here?...fine, have it your way...).
Regardless of how you want to argue it, cable/satellite TV is not a "need"; you could live without it, so place it in the "want" category.
Needs are best described as true necessities:
Rent/Mortgage (homeowner's fees, insurance)
Health insurance (if it isn't deducted from your check)
Utilities (electricity, water, sewer, etc)
Groceries (again, double stuff Oreos are more of a want, but I digress)
Transportation (car+gas+insurance/mass transit or however you get around--hovercraft anyone?)
Clothing (dry cleaning/replacing what wears out, not shopping sprees to Saks!)
Credit Card/Student Loan/etc minimum payments (yes, if you don't believe me try not paying them!)
What are wants then? Why everything else of course! (Include eating at restaurants here, unless you are required to eat out...yeah, not too many can claim that; so most meals at a restaurant are a "want".)
Great, we have taken care of that; let's see we've got: Needs-check, Wants-check...oh yeah, the "D" word. Debt.
Debt can be summed up as this, anything you pay on a loan above the minimum amount due. What's a loan? Well, for starters: mortgages, student loans, car loans, personal loans, credit cards...wait, a credit card is a loan? Yep. It's nothing more than a short term loan. (albeit at a great rate for the first 21 days!) So, if you have a balance on a credit card, it's a loan. If you have been paying extra on any of your loans it goes here; if not, it's okay--we just have more work to do.
Now, just in case there is someone somewhere out there, some fiscally responsible person who amazingly has no debt whatsoever; what are you doing reading this blog? Wait! I'm kidding!
I have one thing to say to you: Way to go!
Now, what to do with your twenty percent? Well, my suggestion would be to take half of it (ten percent) and start putting it into savings; either for retirement or just into an interest bearing account (even if it is only paying two-three percent).
The other ten percent? Have fun! Do whatever you like with it! You earned it! (which should be everyone's goal!)
Until next time...
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