The big question for many
people who want to better manage their personal finances is how to make the
expenses fit within their monthly income. This
is not even an easy task, since needs and consumer temptations are everywhere.
To resolve this problem, you
need to create goals for your monthly budget. So you have more clarity on how much
you can spend on each expense to be able to achieve your first two financial
goals:
1. Stop closing the
month in the red;
2. Start saving money.
There are several ways to
organize these goals. One is to apply the rule
of 50-15-35. Have
you heard it? The good news is that the rule of 50-15-35 works very simply. From now on, it is time to allocate your income to your
monthly expenses; you will consider three major groups:
#1: 50% for essential expenses:
The essential
expenses include
all the expenses necessary for you to keep your day-to-day basic needs:
housing, education, health, transport and food are examples. Also, expenses that fall into this
category include rent, electricity bill, gas, phone, school, bus fare, petrol,
health insurance, medicine, therapy and supermarket.
#2: 15% for financial priorities:
There are two possibilities for
your financial priorities,
depending on your financial situation:
1. If you are in debt: Your financial priority will be to settle your debts. Remember that depending on the
severity of your financial situation, you may need to commit more than 15% of your income to
solve it. In this case, you will
have to compensate by cutting spending in the other two groups: lifestyle (we'll discuss it later) and essential
spending (although
there is less cutting edge, it is always possible to save on mobile account and
supermarket).
2. If you are not in debt: financial priority will be to save part of your income to achieve your
medium and long-term goals. Saving
15% of income per month, your first financial goal should be to build
an emergency reserve of
three to six months salaries, so that you protect the moments of uncertainty of
life and not have to resort to overdraft every time you come across an
unexpected expense.
Read: How Can I Make Money?
#3: 35% to maintain your lifestyle:
With essential
expenses in order
and financial priorities guaranteed, you are free to use the
remaining 35% for what gives you pleasure. The
expenses related to your lifestyle are all those that are not essential (i.e.
can be cut at a time of tightening), but are important for you to have fun and
enjoy life: bars and restaurants, the club,
gym, salon, travel, cable, magazine subscriptions and shopping at the mall are
examples.
The great secret is to
understand that the expenses related to lifestyle must come AFTER you already
take care of your essential spending and your financial priorities. In this situation, you are free to
spend, no fault.
Conclusion
Once you stick to the above rule, you will have a
financial balance you will be proud of in no time. All you need is discipline
and things will move smoothly for you. If you have not been keeping records of
your income and expenditure, now is a great time to start.
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