It is important to understand where your money is going in order to save money, and stay on budget. I like something called the “40/20/30 system” I will break it down for you in this blog post and hope that you can benefit from using it.
- 50% of your salary for monthly payments such as rent, bills, health, cell phone, internet, etc. You know those monthly bills that you hate to pay but are essential.
- 20% towards savings. This is meant for your savings or emergency account and isn’t meant to be spent unless it is an emergency.
- 30% for leisure savings such as restaurants, shopping, movies, etc. This is the stuff that might not be a monthly payment, but often times comes back around. This can be flexible spending since you might not go out each month, and would rather spend it on something else.
The first thing you need to do is write down every amount of money you spend. Your bank account overview doesn’t count, because it doesn’t show what you are buying. I hate looking at my bank account because I am be surprised at the end of the month. I get depressed seeing how much I spent, then I go back through the bank statement wondering where it all went and what was purchased and what was a necessary. I mean honestly, do we even know where our money goes?
I like the Envelope System
This is for you to have a different envelope for each spending category. You just need to add the cash in the envelopes in the beginning of each month. This is a great way to reduce your spending and know how much you can spend. You will be forced to not purchase anything on your card.Once the cash is gone, it is gone and you can’t spend it elsewhere.
I know this might not seem realistic or can seem overwhelming to many so here are seven Baby Steps to think about for spending:
- Emergency fund
- Pay off all debt but the house
- Have 3 to 6 months of expenses in savings
- Save 15% of income for retirement
- College funding for children
- Pay off mortgage loan
- Build wealth and give to others.
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