A budget is a plan you write down to decide how you will spend your money each month.
A budget helps you make sure you will have enough money every month. Without a budget, you might run out of money before your next paycheck.
A budget shows you:
A budget helps you decide:
For example, your budget might show that you spend $100 on clothes every month. You might decide you can spend $50 on clothes. You can use the rest of the money to pay bills or to save for something else.
Budgeting is essential to helping you achieve your financial goals. You need to know how much money is coming in, going out, and in savings.
Income In (salary, investment income)
- Expenses (bills, subscriptions, loans, food)
= Money you can put towards your financial goals
Do you really need that new 72" flat screen? Well if your TV is broken, maybe you do need a new TV but does it have to be this years 4k model? This is the debate of need vs want.
What is a need? Things you cannot live without such as food, housing, depending on your job a form of transportation, maybe even a cell phone.
What is a want? Something you can live without such as high end clothes, streaming subscriptions, the latest model of any electronics.
Discretionary Spending - spending that you choose, extras
Mandatory Spending - spend you have to make such as food and utilities
Many financial planners would say you should only spend money on discretionary items only after you have paid all of your mandatory items and have placed money in your savings.
What is the 50/30/20 rule?
The 50/30/20 rule is a budgeting technique that divides your take-home income into three categories by percentages. It’s a simple way to track your spending. Here’s the breakdown:
|NEEDS 50%||WANTS 30%||SAVINGS OR DEBT 20%|
|Rent or mortgage||Streaming services||Emergency fund|
|Groceries||Credit card payments|
Taken from Better Money Habits (https://bettermoneyhabits.bankofamerica.com/en/saving-budgeting/creating-a-budget)