3 Easy Budgets that Actually Help You Save Money
There are many budgets that save money and build wealth. In this post, I discuss 3 types of budget to save money and the pros/cons of each.
Why You Should Budget
For many first generation Latinas and immigrants, we find our way through life and finances. Many are unsure where to even begin. However, budgets to save money are a great way to start.
Having a budget will help gain control of your dinero, money. How you spend your money, is crucial to gain financial freedom and build wealth. The three rules I discuss will calculate percentages based off your income. Additionally, you can adjust each percentage as your pay increases/decreases. More on how to start a budget in my 3 Easy Tips to Start Budgeting Your Money blog.
Rule #1 : 50/30/20 Budget
Senator Elizabeth Warren’s 50/30/20 rule is in her book, All Your Worth: The Ultimate Lifetime Money Plan. The idea is to spend 50% of your after taxes , income on your absolute necessities. These are your rent/mortgage, electric bill, groceries, and other must-haves (pero not Netflix ). The next 30%, is spent on your wants (yuppii Starbucks). The last 20% is for savings and paying off debts. A great breakdown of how to calculate can be found here.
As a beginner, this rule builds the habit of dividing your money, which prevents overspending. Also, you can still enjoy your money and take care of the important things. It isn’t too complicated and has basic categories, which makes it easy to follow. It’s a great first step.
However, although you should have emergency funds, you can lose the value of your money overtime due to inflation. I wouldn’t recommend that you stay in this budget long-term. Also, it does not have a category for investing. These percentages may be hard for those who have low incomes or live paycheck to paycheck. For example, it may show your necessities can calculate to $1,500 but in reality you spend $1,800. Some of these, like rent, are not able to be adjusted.
Rule #2: 70/20/10 Budget
The 70/20/10 breaks up your take-home pay into three categories. Your monthly expenses, should make up 70%. Savings and investments should make up another 20%. Finally, the last 10% for debt or donate.
Similarly, beginners may benefit from this budget. Likewise, those who spend a little too much, can benefit as well. No hate here, I too was once at this level! Not only is it very broad, but it still ensures you put money into your savings. Once again, it may not be ideal if your finances don’t allow for the 20% in savings.
Rule #3: 60/40 Budget
Finally, the 60/40 rule, splits your income into five categories. The 60% of your income goes to the basics you need to survive (rent/mortgage, food, etc.). The next 40% is has four 10% sub-categories. These are for short-term investments, long-term investments, emergency funds, and entertainment/fun.
As a result, intermediates like me, prefer this rule as it includes investments and fun money! I personally use the 10% blocks for emergency savings (i.e. car/home repairs), retirement (401k), travel, and fun money. I do have a category for real estate investments, but that is self-financed via the rental income.
Picking a Budget that’s right for You
Which budget should you use? First, decide where you are in life. Are you a beginner, intermediate, or more advanced? How much extra cash do you have each month, if any? What are your goals?
Pick a budget that is right for your situation right now. Over time, your budget will evolve as your finances shift. At first, I would pay my car loan. Eventually, I was able to save money. Now my budget includes investments, travel, and fun money. You can download a free copy of this Simple Budget.
Most importantly, trust the process!
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