Budgeting may be a painstaking task, but people who practice it swear it works for them. Just look at budget-conscious folks in your circle. They seem to be doing better financially with very little debt on one hand and a considerable amount of emergency funds on the other. Since budgeting is deeply ingrained in their system, you can almost be sure that they will be enjoying a financially stable life in the future.
Considering that they have their own share of expenses, you might wonder how they budget their income effectively. The key is to come up with money-related strategies that will work for both your means and needs, whether it’s getting a short-term loan through online pawning or the 50/30/20 rule in budgeting.
Step 1: Calculate your net income
It might not be possible to determine up to the last centavo how much you’ll be earning at the end of the month, especially if you’re self-employed or managing a business. However, you could at least come up with a ballpark figure of how much you’ll have on hand since your net income doesn’t vary greatly from month to month.
So, if you’re getting something like P15,000 to P16,000 net every month, go for the more conservative amount as your monthly budget. That should give you a little bit more room if you need to make a few adjustments here and there.
Now that you know how much is in your 30-day budget, the next thing to do is to split the whole amount in the 50/30/20 percentage.
Step 2: Set aside 50 percent for your needs
Sometimes, it can be difficult to label a particular item as strictly a need except for your monthly fixed expenses. Take groceries, for example, which some financial planners might contest as more of a want than a need.
True enough, you could easily fall trap to buying more than what you need on food staples alone thinking that it’s food you’re spending on anyway.
The way to go about this dilemma is to think how spending money on your budget would impact your life. If you could objectively say that crossing out certain food items from your grocery list is going to leave you unnourished, then it should form part of your fixed costs. A regular loaf of bread or focaccia bread, anyone?
Here’s a sample list of monthly fixed costs:
- Utility, subscription, and credit card bills
- Car payments and maintenance costs
- Tuition fee
- Health insurance and medicines
Step 3: Limit your wants to 30 percent
The operative word here is “limit.” Anything that you can do without to live a standard way of life belongs to the wants category.
Say you’re an employee and you need to look presentable at work, you could do so without going beyond your budget for shoes, clothing, or accessories since you can wait for clearance or inventory sale events at your favorite shop.
You also need to ditch your brand-conscious attitude and be more practical when buying things. Go for local merchandise, try out a competing but more reasonably priced product in the market, or make some DIY stuff out of old materials in your closet.
There are so many ways you could maximize the 30 percent allocation, whether you’re spending it on fashion, recreation, or any other form of indulgence.
Sample list of flexible costs:
- Shoes and clothing
- Lunch outs and night outs
- Salon visits
- Entertainment: concerts or movies
Step 4: Allot 20 percent for your savings or emergency fund
Whenever you receive your paycheck or income, immediately set aside 20 percent like you never had it. The 20 percent saving is as good as money spent, albeit well spent at that. Invest it in savings, emergency, or retirement fund that will help secure your financial status.
Additionally, you may also allocate the 20 percent section of your budget toward debt repayment. This happens when you have outstanding payments to make on top of what you paid for with the 50 percent of your budget. This is OK as long as you’re able to clear your credit accounts out of your monthly income and avoid paying penalty fees for missing out on debt payments.
Budgeting is no easy feat. You really need to scrimp and spend within your means month after month until you get used to the habit of sticking to your budget. And if you’re bent on following the 50/30/20 rule in budgeting, do it with utmost discipline. Resist the urge to spend lavishly and always remind yourself of your financial target.
In between implementing your budgeting plan and getting ready for retirement, you could come up with other helpful strategies for your short-term cash needs such as online pawning. At PawnHero, you can pawn your personal items, receive high-value appraisals, and pay off your loan proceeds with the most reasonable interest rates that you can’t find anywhere else. This way, you don’t get to deviate from your budget and still live within reasonable standards.
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