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The majority of Americans lack basic financial education. This causes many Americans to spend more than they earn and fall into debt. Luckily though, building a budget is a quick way to avoid this trap.
A budget is a money system that gives every cent we earn a job within our financial plan. A person with no financial responsibilities should use the 50/30/20 plan to budget their money. However, someone with many financial obligations should try the 75/15/10 plan instead.
The sad reality is that the majority of Americans don’t know what to do when they get their paychecks.
So, in this article, we’re going to show you why saving is not budgeting, what in fact is a budget and how to budget your money depending on your needs and age using the 75/15/10 and 50/30/20 methods.
Use Budgeting To Simplify Your Money
If you cringe when someone says the word, ‘budget,’ you’re not alone. Reportedly, 33% of Americans don’t have a budget and have no plans on making one.
If you’re part of this crowd, we don’t blame you. Cornerstone budgeting tips have always been:
- Save every extra penny you have
- Don’t spend any money on things you don’t need
- Save until you retire
Now, these three things are wrong for a lot of different reasons, and we’ll break them all down later on.
But the biggest issue with all three? These are saving tips, not budgeting tips. And they’re not very good savings tips either.
By the way, we wrote a whole guide on how to save, which is different from budgeting. And if you’re falling behind in your savings game, you should definitely check it.
Saving every extra penny you have just doesn't make much financial sense. How can you know exactly how many extra pennies you have without a plan in place beforehand?
If you never spend money on things you want, then what is the point of making money in the first place? Horde it in a savings account until you die? Save it so someone else can spend it years from now?
We want you to actually use your hard-earned money while you’re in the best years of your life, not just for the 10 or 15 years after you retire.
But we also don’t want you to just wing-it when it comes to your money, either.
These old “budgeting” strategies don’t offer any structure for you to actually use your money efficiently.
They only set you up for failure in the long run because you’re not developing good financial habits, you’re just throwing your money into a savings account in hopes that it will benefit you in the future.
This is why you need to learn how to budget your money before you can save it the right way.
Think of your finances like baking a sweet potato pie. It doesn’t just start out a pie, right?
Of course not! You’ve got to add water, sugar, and sweet potatoes, and even then, you’ve got to let it bake for a while, and then let it cool before it’s time to finally eat it! And don’t forget the whipped cream…
Budgeting Plans For Simple Money Management
You’ve picked apart your finances and you know exactly how much you’re spending every single month. So how much should you set aside, and what exactly should you break your money into?
Well, we’ve created two budget plans (50/30/20 and 75/15/10) to help you organize your money in the most efficient way possible. Let’s talk about the two plans.
Simplify Budgeting – The 50/30/20 Rule
You may have heard of this type of budget planner before for your after-tax income, and it may have looked something like this:
- 50% of your income goes towards your needs or expenses
- 30% goes towards anything you may want, like that shiny Gucci belt
- 20% of it is exclusively for saving
Sounds great until you remember one thing: We’re the Minority Mindset, and we don’t think like the majority of people!
This plan neglects some key things like investing, which is part of using your money the right way.
In our adjusted 50/30/20 plan:
- 50% of your after-tax income goes towards spending that includes needs and wants.
- 30% of your money should be budgeted for investing, that way you have multiple streams of income which are important for your financial health and stability.
- 20% is for saving, but we don’t want you to save forever, so once you have about 6 months' worth of expenses saved, move that money you would have saved into your investing budget.
This is the budget to follow if you’re young and do not have a lot of financial responsibilities.
Simplify Budgeting – The 75/15/10 Rule
If you’re older and have a lot of financial responsibilities, then you’ll want to follow our second budget plan which is the 75/15/10 plan, which looks something like this:
- 75% of your income goes to expenses
- 15% goes to investing
- 10% goes to saving — that is, again, until you reach the 6-months worth of expenses threshold
This budget planner works in a similar way to our 50/30/20 plan. It gives you the breathing room for your expenses and wants, while still allowing you some money to save and invest.
By sticking to one of these plans, you will begin using your money more efficiently and create long-term stability for your finances.
Simplify Your Budgeting To Simplify Your Money – Final Thoughts
Budgeting your money won’t make you rich overnight and it certainly won’t double your income in 30-days.
But budgeting your money does give you the opportunity to organize your finances, and then strategize your spending patterns so you can start developing good money habits and begin saving.