I was doing a little cyber-nerding and I started researching the best way to budget and save. As a result, I stumbled onto two distinct methodologies:
The 70/30 Rule and the 50/20/30 Guidelines.
I know what you’re thinking…
Chiiilllllll. I got you!
The 70/30 RULE
The 70/ 30 Rule simply states we should learn to live on 70 percent of our after-tax income. You only spend this on necessities and luxuries.
Now, what about the rest? Some experts suggest allocating the remaining 30 percent to the following:
Of the 30 percent not spent, one-third of our after-tax income should be utilized to create wealth. This is money you could use to buy, fix, manufacture or sell. In other words, make your money make money. I’m with it!
Aaaah, wealth building- that’s kinda like the whole reason I created this blog. So how do you go about creating and building wealth? You could learn to buy a product at wholesale and sell it for retail. Or you can purchase a piece of property and improve it. There are many options to choose from. This 10 percent can be used to purchase your equipment, products, property or equity—so, get started, asaptually!
The next 10 percent should be put in savings. This is probably the least exciting part of your wealth plan; but it is important, because it can offer you peace of mind by preparing you for the “rainy days”.
A wise person once told me “, Let me give you the definition of “rich” and “poor”: Poor people spend their money and save what’s left. Rich people save their money and spend what’s left.”
Now, that’s some real sh*t, right there.
Lastly, the final 10 percent should go to charity. Charity is the act of giving back to the community and helping those who need assistance. Some people believe that contributing 10 percent of your after-tax income is a good amount to strive for.
The 50/20/30 Guidelines
The 50/20/30 Guideline states that 50 percent of our total take home pay should be used to cover all fixed, monthly costs. These are bills and expenses that don’t vary much from month to month, like rent or mortgage payments, utilities and car payments. The expenses could also include subscriptions, such as gym memberships and Netflix accounts, because you’re committed to paying them on a monthly basis.
As far as the other half of your after- tax pay, some experts suggest allocating the remaining 50 percent to the following:
It is suggested that approximately 30% of our take-home pay be used toward flexible spending. These are day-to-day expenses that can vary from month to month, like eating out, groceries, shopping, hobbies, entertainment, or gas.
Groceries is included in flexible spending because even though food is a necessity in our budget, how we spend on food can vary. Some weeks you might eat out more, while others you may buy more groceries because you feel like chef’in it up, that week.
Experts suggest that the best way to determine your flex-spending amount first subtracting your fixed costs and financial goal contributions from your take-home pay (the amount that hits your bank account after taxes and any 401(k) contributions). This way, you’ll know that the amount that’s left for flexible spending is truly yours to spend however you want.
Finally, the remaining 20% of your take-home pay should go toward important payments or contributions that will help you secure your financial future.This can include: paying down credit card debt, saving for retirement, building an emergency fund , or maybe even a down payment on a dope new loft with floor to ceiling windows and exposed brick.
To be perfectly honest, I am currently leaning toward the 50/20/30 Guidelines, only because majority of my income is currently going toward my living expenses.
At the end of the day, after taking a detailed look into your own personal finances, only you know what methodology will work for you. Hell, you might even discover a custom version that works fine, too. At the end of the day, just remember our goals on this crazy journey to becoming wealthy.
Have you tried either of these budgeting suggestions? Did it work for you? What are your stories and suggestions? I want to hear from you!