So here’s the thing:
- I do not like budgets
- I do not like debt
- I want to be a responsible adult (someday)
- I still want to have fun and treat myself (hopefully everyday)
- I would like to stop wasting money and be more mindful of my money usage
Up until now, I have tried a variety of different budgets and tools. With every budget I set for myself, I eventually end up slipping and, before I know it, going back to my old habits of mindless spendings. I very much enjoy the concept of tools such as Digit, but I think at this point I need to graduate to the next level: I need to start digging my own path to financial freedom and peace of mind. Recently, I keep hearing many success stories of the “50/20/30 method.” This year, I challenge myself to use this method as a basic guide for my finances to have more control over my cash flow.
My take on the 50/20/30 budget method:
50% of your income= NEEDS
This category of spending includes anything you think you need for survival: food, water, shelter. So put your utilities, rent, insurance, groceries, etc. in here.
20% of your income= SAVINGS
This category will contain your savings and your debt payoff. So put 20% toward paying off your credit cards, debts, and then start putting this money into a savings account for a rainy day and/or retirement.
30% of your income= WANTS
All of your optional spendings will go into this category: Eating out, movies, your Netflix account, other fun stuff…
Now, categorize all (and I mean ALL) transactions from your past month.
Do all the math to figure out what percentages each of your three categories are [divide the cash amount spent in each category by your money coming in (your paycheck) and multiply that number by 100 to get your percentage for that category]. Now add all of your percentages together, this will most likely not add up to 100%.
For example (a very simple example), if I spend a total of $10 in my “wants” category per pay period and my paychecks are $100, then I spend 10% of my paycheck in my WANTS category (10/100=.1, and .1×100= 10%). Again, all of your categories together will not always add up to 100%, which is absolutely normal.
Is your total percentage somehow over 100%? Then continue reading, my friend.
You spent more than you earned that month. It’s not the end of the world, but let’s stay away from this, ok? If your “needs” are using over 50% of your income, then consider ways on how you can save here: this might be difficult since you NEED to live, but you could try lowering the heat in the winter, or finding a cheaper place to live, maybe consider using some coupons when you go grocery shopping. Next, take a look at your “wants” category. Is it over 30%? If so, this should be a super easy fix (like.. don’t eat out every day, prepare your own lunch, get movies from your library, borrow your textbooks instead of buying them). Try to get your categories as close to the above percentages as possible. Check this list out for some ideas on where you can cut back and find some extra change.
Is your total percentage somehow under 100%? Great!
Awesome! You didn’t spend as much as you earned. However, this does not mean you don’t have room to improve. Again, try to get your percentages as close to the above as possible. If your “needs” and “wants” were already close to 50% and 30%, then amp up your savings, start a retirement fund, pay off your car/house/student loan faster.
Budgets can be a lot of hard work, but now that you have this simple budget, the hardest part will be to actually stick with it (at least that will be the hardest part for me). This should be an easy budget to stick with, but I will post some motivation throughout the year.
Get started on a budget
Follow budget for a year
Share your progress with others
Going back to what I started with… this budget does not feel limiting (and therefore does not feel like a budget), it will help me save up some money, it makes me feel like a responsible adult, it still allows me to treat myself, and it forces me to spend my money wisely and more thoughtfully.
This is a HUGE step toward becoming the adult I want to be. Now time to reward myself!
Maybe being a grown-up won’t be so bad after all…