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Wednesday, April 2, 2014

An Easy Way To Budget Your Money

I recently stumbled upon this post from Levo and lead me to this article from Learnvest. The posts taught me about the 50/20/30 rule in budgeting, which I immediately applied to my own budgeting. I was only saving 11% from my monthly net paycheck and this rule taught me to safe 20%. That means I have to cut money from the 30% I can spent on lifestyle.
I've learned a whole new way in budgeting and now I know exactly how much I can spent on fun stuff.

Here is how the 50/20/30 breaks down:

The 50/20/30 Rule can be easy because instead of telling you how to break down your budget across 20 or more different categories (who could possibly keep track of that?), it splits everything into three main categories:

1. Essential Expenses

No more than 50% of your take-home pay should go toward Essential Expenses, which are the expenses you need in order to maintain the fundamentals of your life: shelter, food, heat, etc. Only four expenses should go in this category: housing, transportation, utilities and groceries.

2. Financial Priorities

At least 20% of your take-home pay should go to Financial Priorities, which are the goals that are essential to a strong financial foundation. These include your retirement contributions, savings contributions and debt payments, if you have debt.

You should make these contributions and payments after you pay your Essential Expenses, but before you do any other spending.

3. Lifestyle Choices

No more than 30% of your take-home pay should go to Lifestyle Choices, which are personal, voluntary and often fun choices about how you spend your discretionary income. They often include cable, internet and phone plans, charitable giving, childcare, entertainment, gym fees, hobbies, pets, personal care, restaurants, bars, shopping and other miscellaneous expenses.

While Lifestyle Choices are the last things you should buy in your budget, you should never feel guilty about that expensive purse or ordering a nice bottle of wine at dinner … as long as you’ve taken care of your Essential Expenses and Financial Priorities first.

Original article
Author: Laura Shin

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