To help you stay on track with your budget, you’ve probably heard of the budget rule percentages.
These percentages are a technique used to help you manage your expenses in an easy-to-follow way. However, there is something wrong with following only 1 of the rules. What’s wrong? You and your budget CHANGE! Over your lifetime, your budget needs will change and you will revise your budget so that it fits your new lifestyle. Let me explain what budget rules are and what you need to know to have the best budget plan for you.
A budget rule is often known as a condensed budget plan. We make these so that we can manage our budget without having to worry about where our money is going and what we are doing with our money. A basic budget plan will be divided into 3 categories: Needs, wants and savings.
The most common budget rules are:
50% (needs) - 30% (wants) - 20% (savings)
80% (needs) - 20% (savings)
60% (needs) - 10% (wants) - 20% (savings) - 10% (investments) *the variable example
Scenario 1:
You are a teenager earning a small allowance and your parents have your needs covered. Budget plans #1 and #2 are NOT for you! Your budget rule as this teen may be 50% (wants) and 50% (savings).
Scenario 2:
You are a parent of 2 toddlers. Investing in markets won’t work with your current income but you would like to have money for savings and to treat yourself to something nice every now and then. Your budget rule as this parent may be 80% (needs) 10% (wants) and 10% (savings).
Scenario 3:
You’re a divorced and single 50-year-old homeowner with no dependents. Your needs are low, savings are good but you would like to try living abroad. Your budget as this single may be 40% (needs), 20% (savings), 10% (wants) 30% Travel Investment
In every scenario, keep in mind I said THIS teen, THIS parent and THIS single. Those budget rules only apply to the examples given. YOUR budget rule will be different because you are different.
Here are some tips to help you figure out your own budget rule over the course of your lifetime:
1. Know yourself and your money personality. Be aware of who you are in this exact moment in time. Know your values, your desires, your goals and your accountability (your ability to take responsibility for your actions and promises). BE HONEST with yourself about the good and the bad.
2. After you have defined yourself, it should be easier for you to look at budget plan categories and be honest about the areas of your life that take up the most percentage. Use this budget plan calculator to help you see percentages: Budgeting Calculator. Now that you have a calculation, you can easily group some of these into NEEDS, WANTS, SAVINGS, and INVESTMENTS to get a new calculation. This is just a visual guide of where you are now. It will become your budget rule after you’ve compared where you are now and where you want to be. When looking at your needs, also see if you can reduce the cost of that need. For example, you need a mobile phone service provider. Check the other service plans that have only what you need without charging you for the extra features. Shop Around! When looking at your wants, evaluate if you are an impulse spender or a disciplined spender. If you are an impulse spender, try to factor in the 1% Threshold rule that we discussed earlier (i.e. only spend 1% of your net income on impulse buys).
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