Everyone needs to keep track of their daily expenses and the best way to do it is to create a budget for everything and stick to it. A budget will keep your expenses in check and helps you avoid overspending and help you with planning to achieve your financial goals. While expenses depend from person to person, the 50/30/20 rule should be the foundation when planning your budget. This rule suggests that you spend 50% of your income on needs, 30% on your wants and 20% should go to savings and investments.
We have put together a few simple steps that will help you create a budget for and allocate your finances for everything:
Calculate your monthly income:
The first step is to figure out your net monthly income. Once you know how much money gets into your bank account every month, it becomes the foundation upon which any future planning is to be done. Assuming your monthly income is X, then 0.5x should go towards your needs, .3x should go towards your wants and 0.2 should be for savings and investments alone.
Estimate your expenses:
Calculate the essential monthly expenses like groceries, rent, and bills, and make sure that the total sum doesn’t exceed 50% of your monthly income. Given this is where you will spend most of your money, here you can find the most room to squeeze your budget and note down every penny you spend and look for places where you cut costs.
Now that you know how much of your money goes where. Set your financial goals that are achievable in the medium to long run. These goals comprise savings for a house, insurance goals, and investment planning.
Following the 50/30/20 rule the idea is to reduce the 30s and 50s and increase the 20 parts. The 50 should ideally cover bills, groceries, rent, mortgage, and utilities. The 30s should make up for shopping, gifts, streaming services, and vacations. The final 20 would take emergency funds, retirement, education, investment, and insurance.
Once you start following these steps, make sure that you are reviewing every piece of money that you are spending and only then you can find ways to minimize your expenses and save more for your future. We here at LiteFin suggest the best ways for our readers to manage their personal finance, check out our other blogs and learn more.
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