Creating a budget is easy but managing your budget is one of the most difficult tasks. This is because planning for financial emergencies is nearly impossible. You can get a life insurance policy but what about those extra 100 pounds you need urgently for something small but meaningful? The best way to fund your life in the short run is to get a payday loan from https://www.paydaypixie.co.uk/. If you are 18 years or older and have at least a part-time job, you can avail these funds quickly.
Still, repaying a loan, no matter how small, takes a great deal of financial planning. Today, we will tell you about the 50/30/20 budget that will help you in managing your finances with ease. Here is how to take advantage of this method.
Determine your post-tax income
Your pre-tax income doesn’t matter here. Write down your total annual income, deduct your tax liabilities and get a post-tax figure. Note that you can go through the taxation process once again and see how you can decrease your taxes. Once done, you will now have an accurate idea about the money you have to spend.
Define expense categories
Now create three categories in which you will classify your expenses. According to our 50/30/20 budgeting methods, your expenses are categorized as- needs, wants and savings /debt repayments. The needs section will include all necessary payments that you have to make in order to sustain. Wants will be limited to things that you can spend at your discretion. The next category is debt repayment and savings. Once all these expense categories have been defined, it is time to allocate your income for all three.
All your needs should be limited to 50 percent of your income. This is often the most misrepresented category on a budget. There are several things that we can easily live without but count as ‘needs’. If your income is $1000, these payments should never be more than $500. If the expenses are more than this number, you must cut down the expenses and fit within this category.
30 percent of your income or $300 could be spent on wants or discretionary expenses. The category is often tricky for people to navigate. ‘Wants’ do not mean splurging mindlessly on anything you get your eyes on. It means the basic niceties of life that you would love to have- include a cable, an internet connection or a couple of clothing items that help you look trendy. Anything beyond that is sheer extravagance and doesn’t need to be indulged in.
The final 20 percent of $200 should be allocated towards debt repayments and savings. Be careful with this category. If you only have debt of $100, the rest $100 should go to savings, not a new loan unless absolutely necessary. If your debt decreases and becomes only $80, the additional $20 should go directly to a savings account.
In essence, this is one of the simplest and easiest budgeting methods to follow. Therefore, it would be worthwhile to use it for the next 3 to 6 months. The first couple of months could be difficult but you would eventually form better financial habits.