Learning how to spend every penny right is a skill every smart consumer should learn. But as a beginner, I believe how to make a reasonable budget plan is a difficult thing. You need to pay for your monthly must-haves without breaking the bank: housing, food, insurance, debt repayments, etc.
But once you decide to start a budget plan, you can easily manage every penny at home, develop correct shopping habits and even start accumulating wealth. Why not?
If you’re making a budget for the first time, you don’t know how to do it or whether your plan makes sense. Follow me and learn more useful tips to help you plan your budget.
Step 1: Calculate your monthly income
You need to know your monthly income to better plan your savings. You can’t make $1,000 a month but have a goal of saving $800 a month. This is obviously unreasonable. You can use an Excel spreadsheet or a free budget template to keep track of your income.
Review all sources of income for you and your family, including regular and passive income. If you have more sources of income, such as financial investment, rental income, etc., please add them to the total income.
If your income is not completely fixed, please use the average income of the last 3 months to calculate.
Step 2: List the monthly expenses
I would prefer to use the 50/30/20 budget method to develop my own personal budget plan. Using percentages is a quicker way to plan your budget. You don’t need to worry about how much each family pays, you just need to know your total monthly income to calculate it.
What is the 50/30/20 budgeting method?
50% for needs, 30% for wish lists, and 20% for savings. This budgeting method works for most people. But if 50% of the demanding budget does not meet your situation, you can adjust the proportion according to the actual situation.
You can also find a budget method that more closely matches your actual situation to make a plan. (Multiple saving methods are provided below)
50% of the budget must be spent
Needs are those bills that you absolutely have to pay, things that are necessary to survive. For example
- Rent or mortgage payment
- Living expenses such as utility bills (electricity, gas, and water)
- Internet and telephone charges
- Insurance (auto, life, and health insurance)
- Car payment and shipping charges
- Student loan payments
- Repay loan
- Other expenses required for your work
You need to distinguish between your “want” needs, such as wanting a new mobile phone, and new game consoles are not part of 50% of the budget. Detention fees arising from late repayment also do not fall into this category.
a little complicated? You just need to remember that any item in the 50% needs budget is indispensable, and if it is not paid on time, it will have an impact on life.
30% of the wish list budget
30% of the wish list budget is unnecessary expenses, such as entertainment, membership subscriptions, gifts, social networking, travel, dining out, and other non-essential expenses. It is very difficult, even cruel, to stop this type of activity completely.
It would help if you didn’t have to live so hard to save money. How to save money happily is the original intention of making a budget plan. Therefore, it makes perfect sense to allocate 30% of your wish list budget.
If you want to get out of debt as quickly as possible, you may need to reduce the 30% budget to 20%-25%. This varies from person to person.
20% savings budget
According to statistics, more than 61% of people aged 25-35 have less than $1,000 in savings. This means there will be no extra money to deal with in the event of an emergency. This is a very unhealthy living habit.
Be sure to include a savings line in your monthly budget. Savings can include opening a savings account, purchasing certain types of insurance, contributing to a retirement plan, and more.
The correct arrangement is to use 20% of your income as a savings fund, and you can choose to give priority to mandatory savings as soon as you receive your salary. You can simplify the saving process by direct deposit or by using a third-party tool.
Remember, less makes more. Even if you only save $10 a week, you can save $40 a month and over $500 a year. This is very easy to do.
Step 3: Set savings goals
It is very important to set goals before starting any action. Savings goals can be divided into short-term goals and long-term goals. Short-term goals include emergency funds, buying a car, a house, travel, etc., and long-term goals include saving for retirement.
You can carry out different plans step by step, or carry out different plans at the same time, which is mainly determined by your comprehensive income.
Savings goals should be prioritized, but exactly how that is done varies from person to person. My advice is to prioritize emergency funds, retirement savings second, and specific savings goals last.
- Start emergency fund
Savings goals for an emergency fund don’t need to be huge, $50/$500 is something you can add to your emergency fund bank. If you encounter any special situation in daily life, if you can’t solve it with cash, first consider using emergency funds. Remember that using debt must be considered last.
- Retirement savings
It would be great if your employer offered you a 401(k) plan, which amounts to free money! But many freelancers do not have a regular employer, so they have to learn how to save for retirement. Remember, money compounding results far beyond your imagination.
If you reduced your accumulation by more than $1,000 in your 20s, you may have reduced your savings by more than $10,000 by the time you retire.
- Specific Savings Goals
This is the simplest and most satisfying savings plan. You can set savings goals for things you want to buy in the short term. For example, if you want to buy a car, you need to set the time you want to buy it and consider your income. You can calculate when you will have enough money to buy a car.
Step 4: Adjust spending and save more money
So far, we’ve seen how to create a budget plan and set savings goals. Is your plan to spend more money than you earn? This may be the reason why you have not been successful in saving money in the past. Ok, that being the case, let’s start learning how to reduce expenses.
1. Reduce the number of times you go to the supermarket.
You’ve discovered that supermarkets are places where the money goes down fast. Although you only want to buy 1 bottle of milk, you will spend 10 times more money on other things in the supermarket without knowing it. You can choose to go to the convenience store to buy your necessities and reduce exposure to various discount information.
If you need to go to the supermarket once a week to buy goods on average, please remember to use these 8 money-saving cashback websites to save you 1%-20% of the money in varying degrees.
2. Consider canceling unrelated subscription services.
Amazon, Sam’s, Costco, and other supermarkets all have their own membership subscription services. But is it necessary for you to buy a membership subscription service in every supermarket? You can refer to the benefits of subscription services given by supermarket members to calculate whether you can get the maximum benefits.
Simply put, an Amazon membership is $139 per year, which includes free access to GrubHub plus+ ($12.9) for one year. If you often use GrubHub plus+, then subscribing to an Amazon membership is the right choice.
3. Use discounted prices to buy gasoline.
The price of gasoline has been soaring since last year. It is very cumbersome to check the price of gasoline every day and choose whether to buy it.
But these 8 gas-saving tips can do a great job of helping you save money on gas. Even reducing the price of gas by $4 per purchase adds over $1000 per year.
4. Purchase gift cards in advance of your trip.
Gift cards are not new as a primary payment method. At the heart of saving money with gift cards is how to buy gift cards that are discounted. You can check gift card sites or other marketplaces for discounted gift cards before you go.
You can also purchase discounted gift cards on-demand while traveling directly using Fluz. Take Disney as an example, if you use gift cards for the entire journey in Disney, you will save 5%-24% throughout the journey.
5. Adjust grocery bills and learn to cook.
You can plan your recipes for the week in advance and go to the supermarket to buy the necessary food. Nonessential or discounted items are not considered. It costs far less to cook at home than to dine in a restaurant or use a food delivery app. It’s also a great way to improve your diet.
I know that sometimes you still choose to use food delivery apps to buy food, so how to use food delivery apps to buy the best deals is well worth reading.
Step 5: Follow up on budget planning
After customizing the budget plan, the next step is to follow up the budget plan correctly and set aside 15 minutes every week to sort out the actual expenditure and income of the week (applicable to part-time jobs).
If you choose to make a 20% savings plan at the beginning of the month, you don’t need to check your savings every week.
In the beginning, your actual expenditure may be a little different from the planned expenditure, but it does not mean that your budget plan for this month has failed. You can reasonably adjust your next week’s spending plan based on the percentage plan you set at the beginning of the month.
keep it up! Sticking to a good budget plan can bring great changes in your life!
Other budget strategies
Maybe the 50/30/20 savings plan is not suitable for you, and the complicated budget plan is even more frustrating, so is there any other suitable savings plan? Try out several savings plans to see what works best for you!
- zero-based budgeting
Zero-based budgeting allocates every dollar you earn to a specific spending or saving goal. You need to detail the proper use of every penny, whether it’s paying or saving. This strategy can minimize the use of money and is especially suitable for people who pay off their debts as soon as possible.
But if you are a person who has poor self-control or is too lazy to calculate every income, then this strategy is not suitable for you.
- envelope budgeting system
An envelope budgeting system, also known as cash stuffing, lets you assign specific dollar amounts to each spending or saving goal. You can use real envelopes to organize a specific budget for each expense. The envelope system curbs overspending with credit or debit cards, allowing you to use cash as much as possible and truly enjoy saving.
- 60/20/20 budget
This method is similar in essence to the 50/30/20 budget method, which achieves the purpose of saving by limiting the proportion of each expenditure. In the 60/20/20 budget method, 60% of the needs budget is adjusted and 10% of the wish budget is lowered.
It would be more suitable for users who need a 50/20/30 approach where more of their income is spent on cost of living.
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