If you believe that you are able to keep a tight rein on your sending despite adhering to your budget, chances are your budgeting method is not suitable for you. Which budget will work for you depend on your financial situation and goals, and you can get to know about it only after using it? For instance, there is a 50/30/20 budgeting rule, but it is more suitable for those whose spending on essential expenses is not much.
The appropriate budget for you is the one that works for you, whether it has a designated name or not. A rule of thumb says that you should create a personalised budget. While it is advisable to stow away at least 30% of your income as savings, some people have found that a 70/20/10 budgeting rule is helping them to stay on top of their expenses.
A 70/20/10 budgeting rule is helpful for those who do not want to keep tabs on every penny of spending in different categories. In other words, if you are the sort of person who does not like micromanagement or does not want to track every penny you spend, this budgeting method will certainly come in handy.
If you choose this budget, you will be able to allocate 70% of your monthly income to spending, 20% to saving and 10% to giving if applicable.
First off, you need to estimate how much money is coming in. Make sure the income you include for this purpose is after-tax income. Factor in your partner’s income as well if you both share your household expenses. If you work as a freelancer, you should determine the average monthly income.
- 70% of your income will go towards your spending
70% of the pay you bring home will go towards the payment of your expenses, and they will also add in discretionary expenses. The most common costs covered under this category include but are not limited to:
- Rent or mortgage payments
- Utility bills
- Car expenses and insurance
- Fuel
- Transportation
- Childcare
- Dine out
- Clothing
- Entertainment
- Travel
- Subscription
- Hobbies
Once you know spending categories, you should divide them into fixed and variable. Fixed expenses are easy to calculate as they will remain the same. They do not change month to month, so it is easy to budget around them.
These expenses most commonly include rent, mortgage payments, insurance premiums, payments of debts like loans with bad credit and no guarantor in the UK, subscriptions and childcare. If you are on a standard variable-rate mortgage, the size of the monthly instalment will vary, but it does not happen regularly, as the Bank of England does not change the base rate every month.
Likewise, your rent will likely go up at the time of renewing the rental agreement. You can easily fine-tune your budget. Variable expenses keep changing month to month, but the good thing is you can whittle them down.
These expenses include groceries, utility bills, entertainment, dining out, shopping, gifts, clothing, travel, and so on. Make sure that all the costs are covered under 70% of your after-tax income. If you have a surplus, it is up to you whether to use that money for your discretionary expenses or put it into your savings bucket for a rainy day.
- 20% of your income will go towards your savings
Savings are crucial. Some budgeting methods require stashing at least 30% of your income, but according to this budgeting rule, you do not need to stow away more than 20%. Note that it includes all types of savings, such as retirement contributions, a mortgage down payment, a car deposit, savings for home improvement and an emergency cushion.
It depends on your goals and which type of savings categories you would like to prioritise at the moment. First, you should pay heed to an emergency cushion. Once it is built, you should focus on others.
- 10% of your income for giving or debt settlement
The rest 10% of your income can go towards a charity club or any organisation to which you donate a fixed sum of money every month. If you are not involved in any kind of charity or donation, you can use this portion of your income for either debt settlement or savings.
There are several budgeting methods you can use such as 60/20/20, 50/30/20, 60/30/10, 80/20 or 70/30. Whatever the method you follow depends on your goals.
It is crucial to keep in mind that it takes some time to achieve your goals, so you will have to be patient. Make sure you track your expenses so you do not fall off the track. Change your budgeting techniques when your financial condition changes.
Description: A 70/10/20 budgeting rule lets you spend 70% of your income on your expenses, 20% on your savings and 10% on charity or giving away.
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