Here's the deal, plain and simple.
If you want financial freedom, you must have a budget.
In my opinion simple is better, even if it leaves out some of the details. If you are particularly OCD and absolutely must know where every last penny of your income is going, then this probably isn't the budget for you. The premise is simple: there are things you need, things you want, and things you have to save for. Therefore your budget will consist of these three simplified categories. Here's the breakdown.
50% of your income should go towards your needs. This includes:
- Utilities (gas, electric, water, trash)
- Insurance (car, health, life)
- Transportation (gas, bus fare)
- Food (mainly groceries, you shouldn't necessarily include eating out in your needs)
- Loans (personal, student)
30% of your income should go towards your wants. This includes:
- Entertainment (concerts, movies)
- Gym memberships (can also go under needs if you choose)
- Eating Out
20% of your income should go towards your savings. This includes:
- Emergency fund
- IRA/roth IRA
To get your exact totals simply multiply your income by these numbers. For instance if your monthly income is $2000 then you would multiply 2000x50% and get $1000 towards your needs, $600 for your wants, and $400 for your savings.
Some things to note:
- For those of you who tithe or like to give away part of your income to charity, you can take that money from either your needs or your wants. Personally I take it from my wants. I multiply my wants allocation by 10% and that is how much I give to charity each month.
- Don't touch your savings. This is strictly an emergency fund. Do not take money from here when you've run out of spending money.
- Inevitably your numbers will fluctuate. Some months you will spend less than others, some months more. If you spend less than you anticipated you can either put it into your savings or into a "rollover fund" that you can add into your wants and needs for next month.
Check out my suggestions on writing your own money manifesto, giving to charity, and when it's okay to spend the big bucks.
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