Do you have a take-home pay of $2,000 a month? How can you stretch that limited amount to cover monthly mortgage repayment, food, insurance, health care, and debt repayment? We know you’ve all heard about budgets but do you really know how to make them work for your situation? Don’t fret, because you are not alone!
In this blog post, we’ll show you how to make a budget in two different ways to help you take control of your finances and reach your financial goals faster.
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Start your budgeting system journey
We all deal with money on a daily basis, so keeping on top of it will be easier if you have a system in place. Budgeting methods provide a framework and structure so that you can keep track of all your spending, saving, and investment goals since you’ll know exactly where your money is going each month and how much is coming in. Additionally, you’ll be able to make the best use of your hard-earned cash and stay on track with your financial goals.
The 60/20/20 budgeting rule
Your spending should be distributed according to the 60/20/20 budget rule. It suggests dividing your monthly earnings into the following three categories:
- 60% of your money should go toward essential expenses such as rent, utilities and groceries.
- 20% should be allocated to financial goals such as debt repayment, savings and investments.
- The remaining 20% should be allocated to your lifestyle choices such as entertainment, dining out and vacations.
This budgeting principle is a terrific approach to ensure that your money is going in the right direction. For instance, if your monthly salary is $3,000, you should set aside $1,800 for necessities, $600 for financial objectives, and the remaining $600 for leisure pursuits.
To get started with this rule, it is important to track all of your expenses and categorize them accordingly. Once you have a clear understanding of your spending habits and needs, it will become easier to allocate income in the correct proportion. However, this rule should not be seen as a strict guideline – everyone’s income and financial situation are different, so the exact percentages may vary depending on individual needs and preferences.
The 50/20/30 budgeting rule
The 50/30/20 budgeting rule is a budgeting strategy created by Senator Elizabeth Warren. According to this rule, you should divide your income into three parts: 50% should be allocated to necessary expenses (e.g., bills, rent, groceries), 30% should go towards discretionary items and 20% should be saved or put towards debt.
The 50/20/30 rule is a great starting point if you’re looking for a way to manage your finances. However, it’s important to note that this budgeting guide is just an indication and may not be suitable for everyone since there are situations where you need to adjust the percentages, such as having high levels of debt or requiring more than 20% of your earnings to be saved. Ultimately, finding a budgeting strategy that works for you and helps you meet your financial goals is important. That’s why setting realistic targets, understanding your spending habits, and reaching out to our mortgage broker Melbourne financial planner can help create an effective budget that suits your needs.
Benefits of having a budgeting system
Setting up a system for spending control may be quite advantageous for individuals as well as businesses. The top 4 benefits of using a budgeting strategy are as follows:
- Helps you stay organised – A budgeting system is a practical tool that helps you monitor your finances more effectively since it allows you to keep track of all your expenses so that you can make sure all of your bills and obligations are paid on time. Additionally, it provides insight into where exactly your money is going, helping you to gain greater understanding and control over your personal finances.
- Increased savings– You can save more money over time by keeping a record of your monthly budget which helps to prevent you from any impulsive purchases. That’s why when you have a solid budget plan, you can set aside a percentage of your income for retirement or other long-term goals.
- Reduced stress– Unexpected expenses can be a source of worry and stress, but having a budget in place makes it easier to manage these costs as they arise. Knowing that you have enough money set aside for necessities can help relieve anxiety over unexpected bills or other financial surprises.
- Improved financial health– Your credit score and general financial wellness might both benefit from a budgeting system since you could avoid late fines or penalties, as well as damage to your credit from missed payments.
Remember that in the end, having a budgeting strategy in place provides you with more control over your money and enables you to make wiser choices regarding your spending, saving, and investing. You may reap the many advantages of having a budgeting system in place by adopting the proper strategy and exercising some discipline.
If you need assistance in creating a financial strategy, our mortgage broker Melbourne financial planner is here to help because our tailored solutions are designed to guide you through the process and ensure that your financial goals are achieved. So get in touch with us today for advice and support on all aspects of your financial journey!