It is ideal for those who are new to budgeting. This spending plan is suitable for families, young professionals, and college students equally. Because this budget scheme is ideal for people who prefer simplicity. Now, let’s come to the matter of why the 50-30-20 budget is important. Taking charge of your finances is a life insurance policy against unforeseen events and a career booster. Because it always reminds us to spend less than our earnings. The remaining 20% is then used for savings or debt repayment.Īt first, we’ll talk about why the budget is important. 30% of the budget is allocated to desirable items. Here, you spend 50% of your income on the most important expenses (e.g. A simple guideline that makes it easy for you to take charge of your finances is the 50/30/20 budget scheme. Elizabeth Warren popularized it in her book All Your Worth: The Ultimate Lifetime Money Plan. In the snapshot below, you can see how I've entered the average for Groceries and Clothing.The 50-30-20 budget is a fantastic basic budgeting method that offers advice on how much to set aside each month for certain expenses. At this point, you should download either the personal monthly budget spreadsheet or the monthly household budget worksheet.įor a first cut at creating your budget, enter the monthly average for each category in the Budget column within one of these spreadsheets. Step 3: Make a Budget to Live Within Your Means To know how much to budget each month for a category that is highly variable or is paid only once or twice per year, divide the total yearly amount by 12 to figure out how much to budget in that category each month. That is how the dentist appointment gets factored in. In my opinion, the ideal budget is based on a whole year's worth of income and expense data. That is because the monthly average in these worksheets is calculated based on the number of columns in the row. The above spreadsheets do this for you, but if you haven't completed an entire year, you need to first delete the columns containing the months for which you don't have complete information. To prepare for the final step in making a budget, you need to calculate your average monthly income and average monthly expense for each of the categories. Magazine subscriptions, car repairs, Christmas gifts, and birthday gifts are all examples of expenses that are sprinkled throughout the year, but these must be carefully considered when making a budget. See how the amounts change from month to month? By tracking you expenses from month to month, you will find that you make some purchases only once or twice a year (like going to the dentist). Making a Budget: Recording actual expenses. Below is a snapshot from the budget planner showing how I've recorded my actual expenses for Groceries and Clothing for January through March. The yearly worksheets are great for making a budget because you can record your actual income and expenses for multiple months. They list many of the most common categories that people use for tracking income and expenses. These spreadsheets work in Excel, OpenOffice, and even Google Docs. At this point, I'd actually start by downloading the yearly personal budget spreadsheet or the family budget planner if you have family obligations. I can't do step 1 for you, but I can help with step 2. When you've gathered all the information, you need to group all your income and expenses into categories. Step 2: Group Income and Expenses into Categories Some people find it useful to carry a 3x5 card in a wallet or a small notepad in a purse to record every time cash is received or spent.ĭownload the Income and Expense template if you want a simple worksheet to help you track your expenses. It is easy for cash and coins to disappear quickly without realizing where it is going: vending machines, toll roads, tips, kids, etc. You need to know how much money you have and exactly where your money is going.įrom this point on, you need to ask for receipts and track the flow of your cash. Get out all your bank statements, credit card statements, receipts, and all your cash. After making a budget, you have to track your expenses in order to stick to your plan, so we are going to start by tracking expenses as well. It is difficult to make a budget or plan without having some information to base it on. "A budget is a plan to help you live within your means" Step 1: Track your Income and Expenses
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