budgeting 101

Everyone’s budget is different.

But if you don’t know where to start, many personal finance experts suggest you start off with a 50/30/20 budget – 50% of your post-tax income goes to necessary expenses (mortgage, rent, loans, etc.), 30% goes to your wants (nights out, movies, etc.), and 20% goes to savings (long-term, short-term) (see illustration below):

I used this budget model when I first started working, and whenever someone asks me what is the best way to budget, this is the model I point them to.

However, as I mentioned before, everyone’s budget is different. Once you get a hang of managing your budget, you begin to realize that these rules might not work for you and your goals. This model worked for me for a while, but my financial goals started changing, and the budget just didn’t fit me any more.

After about a year of using the 50-30-20 budget model, I adjusted my budget to a 40-30-20-10 model – 40% necessary expenses, 30% savings, 20% spending, and 10% tithing (see below):

I just want to highlight a few of the changes:

Decreased monthly necessary expenses from 50% to 40% – in about a month, I’ll be moving back in with my mom, brother, and auntie, saving a significant amount on rent. I’ve also just finished paying off my credit cards, so my necessary expenses have decreased on their own.

Increased monthly savings from 20% to 30% – I have a lot to save for – my retirement, my future car, my future career plans, and my future life in New York. 20% just wasn’t cutting it anymore.

Decreased monthly “wants” spending from 30% to 20% – When I began taking my lunch to work, I realized I saved a lot of money this way! Ever since then, I’ve been finding ways to cut my ‘wants’ budget and I’ll be sharing these insights with you all in the future.

Added a 10% tithing allocation – Tithing is something that I as a Catholic firmly hold myself to. I’ll be doing a full post on this later.

So there it is – if you want to get a hold of your finances you must, must, must create a budget!!!  Believe me, I tried managing my finances without a budget, and it only led to disaster (a.k.a. credit card debt)! I’ve provided you with two guidelines, so take one and adjust it according to your own personal finance goals.

In my next post, I’ll show you how I plan to further edit this budget in order for me to be able to throw about $500-600/month toward my student loans.


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