According to Credit Counsellors Australia, there are several reasons why budgeting doesn’t work. A couple of these reasons include budgeting being too complicated and people not including savings into their financial plan. Another common reason why budgets tend to fail is because they are time consuming, which leads to frustration and people simply giving up on the daunting task of trying to keep track of everything. The good news is, it doesn’t have to be this way. By using the 50/20/30 budgeting method, you can simplify your finances, cut down on the amount of time you spend on budgeting and even start saving money. Here’s how:
How many categories do you have in your current budget? 10? 20? More? No wonder why it’s so hard to keep track of everything! With the 50/20/30 budgeting method, you only need 3 categories, which include:
You have costs that don’t change from month to month such as your auto payments, home loan payment, some utilities, membership fees, rent and insurance to name a few. While some of these bills may vary slightly from month to month, most of them are fixed and you know what you’re going to owe every month. This is the 50% category and it’s recommended that your expenses don’t total more than 50% of your monthly income. If you find that they do, you can look for ways to save such as using less electricity, moving to a place with a lower amount of rent, or cutting out unnecessary expenses.
One financial mistake that’s often made is that people don’t pay themselves first. 20% of your monthly budget should go towards savings, retirement funds, superannuation or insurance products that protect your income in the event you become ill or injured.
The last category involves the remaining 30% of your budget and includes costs that vary from month to month such as food costs, eating out, entertainment, purchasing clothing and personal items. This category can easily get out of hand and prevent you from saving if you’re not careful regarding spending habits. Because of this, no more than 30% of your income should go towards this category.
When you only have to break your budget down into three categories, it’s easy to see how much less time consuming and complicated budgeting becomes. With such as simple method and only having to remember three things, it’s also more manageable to put your own savings goals first so that you can invest in your future and stop living paycheque to paycheque.