It may seem boring and tedious to engage in budgeting activities, but believe me that you should not think in this way. If you want to obtain financial freedom in the future, you need to start budgeting your finances right now. Being an ambitious young professional, you need to have both career and social life which require some money. The 50/30/20 rule is not something fancy which requires complex formulas to implement. Instead, this is the easiest way to save money and prevent your salary from disappearing into nowhere.
The method suggests dividing your salary into three equal parts according to its importance. Fifty percent of your income should be used to cover your needs like rental payment, utility bills, and shopping for food. Thirty percent is spent for your wants which are Netflix, movies, and an expensive coffee in a local café. Finally, the remaining twenty percent should be used to ensure your financial safety which is debt payment and investments.
You may think that you spend too much for yourself, but listen to me carefully. If you impose yourself severe limitations, you will definitely overspend your money. So, you need to use this strategy in order to have fun now and create your future empire. Remember that it is not a sprint but a marathon and therefore, do not forget about potential burnout.
Firstly, you have to find out how much money you receive as salary. Do not think about your gross income, you should consider after-taxes income. Therefore, use your banking app and find your net deposit amount.
For example, your salary is five thousand dollars per month after the tax deduction. It means that your needs will cost you twenty-five hundred dollars, wants will take fifteen hundred dollars, and your savings will take one thousand dollars. In case the cost of your monthly rent already takes two thousand dollars, you should increase your salary or find a roommate since fixed costs will kill your future wealth.
The wants category is the one in which guys usually waste their money without any realization. For example, buying one dollar of coffee each day and buying unnecessary products from Amazon Prime will increase your expenses faster than you think. Therefore, track your expenses for a week using YNAB or Copilot applications. It will surprise you with what it will show you.
Twenty percent of your salary spent for your savings is the fuel for your future success. It is very small number right now but due to the magic of compound interest, it will turn one thousand dollars into the fortune. Transfer this amount to your high-yield savings account immediately. It is obligatory, there are no exceptions in this situation.
The hardest part is not to make budget but to track where your money go. Indeed, most people create their plans but never follow them. The secret of successful budgeting is the weekly tracking of your transactions in each bank account. Create calendar reminder for Sundays when you should check your categories. It takes only ten minutes to save you from realization that you have no money left in your account at the end of the month.
There will always be some unexpected expenditures like car breakdown or celebration of birthday of your friend in an expensive restaurant. There is nothing to worry about being over the budget in one category – simply change it in the following month. This budgeting method is all about the direction, so do not stress out that everything is perfect.
You create a new habit which requires some time. Once you automate your savings process, you will forget about these savings since the process will be done automatically. Think of your savings as of the bill which you cannot miss. Your forty-year-old self will thank you for this disciplined habit which you develop right now.
Do not waste your time trying to make a perfect budget – simply move numbers around. You know the formula, you have the tools, and you have the motivation. Simply open the spreadsheet, set the limits, and watch how your net worth increases.