Budgeting is tedious, but there’s no other way to manage your finances. That’s why you just have to find a way to do it anyway. The easiest and most effective budgeting technique is the 50 /30 /20 Budget Rule. Senator Elizabeth Warren created this rule for spending and saving when co-authoring a personal finance book with her daughter, Amelia Warren Tyagi.
This budget rule helps you to live within your means, have complete control and knowledge of your income and while at it, live your best life. Basically a triple win situation.
The idea is quite simple, just apportion your monthly expenses into three categories.
50 percent of your income, say that from your salary or a side hustle, should go into catering to your essentials or needs. Think rent, yaka, water bills, transport, and food. If you cannot fit your needs into approximately half of your salary, then you are living beyond your means and setting yourself up for a cycle of debt or a complete disaster. Don’t be deceived that a sudden hike in your income will remedy this.
The next 30 percent then caters to your ‘wants’. Think about that trendy pair of shoes you absolutely do not need? Get it. Drinks with friends? Have enough for a weekend getaway? Treat yourself. This 30% is literally an allowance to spoil yourself with and keep sane. Get the good things you want. It’s a work hard, play hard sort of indulgence.
Go ahead to save or invest The 20% you’re left with. Some of it can also cater to paying debts, tithe and future goals such as buying/ building a house or starting a business. If you have loans, create a payment plan and avoid taking on more debts. 20% seems like a tiny percentage off your income, but it can add up quickly if used wisely. In fact, you can go ahead to cut down on a few of the ‘wants’ you spend on with your 30% in order to save more.
Try it.
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