For the last two weeks we addressed the 50/30/20 rule of budgeting.  Over the next few weeks we will look at other “rules of thumb”.


Rules of thumb can be a good approximate guideline for decisions, and there are tons of money rules that aim to get your finances on track. While everyone’s situation is different, these serve as a good starting point.  Since everyone’s situation is different, there are suggestions on when to rework them to your needs.


The 50/30/20 Rule


The 50-30-20 (that we previously discussed) suggests putting 50 percent of your income toward necessities, like housing and bills. Twenty percent should then go toward financial goals, like paying off debt or saving for retirement. Finally, thirty percent of your income can be allocated to wants, like dining or entertainment.


There are also variations to this rule, like the 80-20 rule, in which you use 20 percent of your income for financial goals, and then spend 80 percent on everything else.


Why It Works: If you’re not sure where to start with a budget, breaking it up into these basic categories can be really helpful. Those percentages help create a balance between obligations, goals and splurges.


When It Doesn’t: You might have trouble with this if you have a hard time separating needs from wants, even with something like housing. If you live in a low-cost area, 50 percent toward housing and bills might be a lot. On the other hand, if you’re not earning much, you might not have the luxury of only spending half your income on necessities.


These rules of thumb are good starting points for your spending. But maybe you want to adjust them, or make a budget that’s more tailored to your situation. In that case, start from scratch, follow a few budgeting steps and design something that works best for you.


Next week…saving towards a vehicle.


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