There are a number of rules, calculator, and formulas readily available to calculate your spending and saving. However, what they don’t include while calculating are your life goals and your current situation. Everyone wants to achieve a strong financial position but not probably not at the cost of your well being. Even if you achieve your financial goals by compromising your happiness, it’s not worth it.
The following guidelines will help you create the right balance between your spending and saving
Create the Right Balance between Your Spending and Saving
1. Define Your Fixed and Variable Income
Determining your fixed and variable income is important before you start the calculations. Calculating your actual income will help you set realistic save and spend goals. It is important to consider your take-home pay and not the one that is before taxes and deductions. Now that you know your fixed income, determine your life goals.
2. The 50/30/20 Rule
The 50/30/20 rule is the most simple and popular budgeting model. According to this rule, you should spend 50% of your ‘take-home’ income on the expenses that are necessary like mortgage, rent, and household goods that you need (not the ones you want) every month. 30% should be considered for family enjoyment and 20% should be kept as savings. Maintaining this will help you a long way to live a stress-free life.
3. Mark Your Priorities
Consider the necessities first and then think of the expenses for your family fun. If you are spending less than 50% on the necessities, that’s great! If you are spending more, you need to find a way to optimise. Majority of people find that they are overspending on their cell phone recharge considering the monthly usage. Whatever may be the reason, try to cut down your necessary expenses to 50% or less. If your necessary expenses are below 50%, you can adjust that in your savings.
4. Family Fun
When you are earning for your family, you should spend on your family. You should always take out some portion of your income to spend on fun things. Even if you have a lot of bills to pay, you should always look for spending on fun. A dinner or lunch out with the family or friends, a small trip with your loved ones or a movie is refreshment for you. As long as you are achieving your savings goals and spending in a limit, you can do what you want!
5. Assessing and Refining
Spending and saving is a long term process. Keep a track on your spending and saving plans. Situations may change, not every month will be the same. Take out some time in the mid of the month to assess and refine your financial plans and goals of the month.
At the end of the day, you know what’s best for you. By following the guidelines, you will be well on your way to financial freedom.
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