If you are trying to manage your cashflow position and looking toward building and maintaining wealth, creating a budget is essential.
By sitting down and completing a budget, you create a snapshot overview of your personal financial position. In doing so, you give yourself the opportunity to gain a better understanding of the movement of your money – inflows and outflows. This information can help you work out how to achieve your financial goals and objectives, such as paying down debt or investing for the future.
The 50 / 30 / 20 budgeting rule
There are many ways to manage your budget. One popular tool is the 50 / 30 / 20 budgeting rule.
Essentially, this budgeting rule provides a rough guide as to how your money should be allocated towards your needs, wants and savings. For example:
- 50% NEEDS: 50% is allocated towards needs, such as rent or minimum home loan repayments, transportation, groceries, minimum credit card and car/personal loan repayments, insurances, education, utilities, private health insurance, phone and internet, etc.
- 30% WANTS: 30% is allocated towards wants, such as daily coffee, eating out, shopping, entertainment (e.g. subscription services, such as Netflix), hobbies, holidays, etc.
- 20% SAVINGS: 20% is allocated towards savings, such as emergency funds, savings accounts (e.g. saving for a new car or a housing deposit), additional debt repayments, as well as investments inside and/or outside of superannuation.
Do you know what percentage you are currently allocating towards your needs, wants and savings?
The Wealth Mentoring Group 