Budgeting Your Money: How to Keep Your Finances in Mint Condition
Gentleman, does your money just fly out the window the moment you get paid? One moment you’re swimming in it, then you blink and it’s all gone. In this inflated day and age, managing your money is becoming more of an art than it ever has before.
Fortunately, we’re here to save your money-spending habits and keep everything in your control like never before (well, hopefully). What we want here is to budget out your monthly paycheck and/or other source of income in a way that covers everything from your needs and wants to your investments and savings. It’s really quite simple so let’s keep this short and jump right in.
Table of Contents
1. Rule #1 – 50/30/20
While this may look like the combination to my safe (it may or may not be), it’s really a simple and effective way to divide and manage your money. This rule helps you allocate your income into three categories: needs, wants, and savings.
Needs (50%)
The first category – needs – should make up 50% of your income. These are the essential expenses that you cannot live without, such as rent, utilities, debts, groceries, transportation, food (that includes your cat’s extensive menu of gourmet food).
Now depending on the extent of your expenses and the amount of income you make on a monthly basis, 50% may be a lot. If this is the case and you don’t need 50% to cover your expenses, transfer the remaining percent to your savings category. You can even look into Rule #2 below if it suits you better.
On the flip side, if 50% of your income does not cover your needs, then we have a bit of an issue. Your expenses are pretty high and you need to either bring it down or make more money. That would be a separate topic, but something immediate for you to do would be to reduce the percentage of your ‘wants’ allowance and transfer it to your needs. You gotta do what you gotta do.
Wants (30%)
The second category – wants – should account for 30% of your income. These are basically non-essential expenses for your lifestyle, such as shopping, eating out, entertainment etc.
While it’s certainly important to enjoy your life and use your money to make you happy, it’s equally important to set boundaries and not exceed this 30% allocation. It can be really easy to go overboard here and this is where your discipline as a high-achieving person comes in.
“Remember, you’re doing this for your future. It’s ok to struggle a bit now to live life freely later“
This can be a bit difficult in the beginning if your income is not especially high, but remember, you’re doing this for your future. It’s ok to struggle a bit now to live life freely later. If you’re looking for ideas on how to start generating income, check out our article on “The Secret to Financial Freedom: 8 Ways to Kickstart Your Wealth”.
Investments & Savings (20%)
The third category – investments & savings – should make up the remaining 20% of your income. This is where you pay yourself first by setting aside money for emergencies, retirement, investments, and other long-term financial goals.
Needless to say, this is a really important part of your budget that you should strive to stick to. I remember Robert Kiyosaki saying in his book Rich Dad Poor Dad, how he always made sure to tend to this first, no matter how much pressure he had from his expenses. He would invest/put aside an amount first, then figure out how to get money for his expenses afterwards.
One of the first things you should do is have an emergency fund for a rainy day. You never know what can happen in life; you could lose your job or could need to pay some hefty medical bills. Regardless, always save and keep aside 3-6 months worth of your living expenses. This will keep you afloat in the event of an emergency and give you time to get back on your feet without having to suffer.
“Always save and keep aside 3-6 months worth of your living expenses. This will keep you afloat in the event of an emergency“
Once you’ve got your emergency fund sorted, it’s time to look towards making more money. Of course depending on the amount of income you have for this, you can invest in different things, but a good first option would be the stock market as you don’t need a ton of money to get started. Guess what? I got you covered for that too! If you’re looking to get started and learn more about the stock market, check out our post on “The Stock Market: Everything You Need to Know to Succeed as a Beginner”.
By prioritizing savings and making it a non-negotiable part of your budget, you secure your financial future and ensure that you have a safety net in case of unexpected expenses.
2. Rule #2 – 40/30/20/10
What’s that you say? The 50/30/20 isn’t quite for you and you need to adjust it a bit? Why not!
If you’re fortunate enough to be in a good position and not have too many expenses (e.g. no mortgages, car loans etc.) or if you need a portion of your money to be put aside for something specific, you can always modify the rule a bit to add an extra category to look something like this:
The point here is, you can be flexible with your finances to suit your needs so long as you are disciplined enough to stick with it if you want to meet your financial goals.
8. Conclusion
Implementing a budget requires discipline and conscious monitoring of your spending habits. It may take some time to adjust your spending patterns and prioritize your financial goals, but the benefits far outweigh the initial effort. By following these rules, you not only ensure that your needs are met and your wants are satisfied, but you also set yourself up for financial stability and success in the long run.
So, gentlemen, next time you receive your paycheck, remember the 50/30/20 or 40/30/20/10 rules and allocate your money wisely. Take control of your finances, avoid overspending, and secure a better financial future for yourself. Whatever you choose, with a solid plan, your money will grow – no ifs, ands, or budgets about it.