When you budget, you know exactly where all your money goes, where you can make adjustments to save even small amounts, and also how to effectively save and leave enough money for unexpected expenses and emergencies, according to Sebastien Alexanderson, founder and debt counsellor at National Debt Advisors.
Alexanderson said that a budget can help you track your expenses each month, and make changes where needed so you can stick to your spending thresholds going forward.
Here are 3 budgeting methods young people can use to start their budgets:
The 50/30/20 budgeting rule
With this budgeting method, you need to allocate:
- 50% of your net income to needs like rent, groceries, and utilities.
- 30% to wants such as hobbies, vacations and dining out.
- 20% to financial goals (that is, savings and debt payments).
The 80/20 rule
Another budgeting method is the 80/20 rule, which separates your budget into two separate groups. One group is for needs, wants and debts together, while the other group is for savings.
You allocate 80% of your income to needs, wants and debts, while 20% is strictly allocated for savings.
The 70/20/10 rule:
Like the 50/30/20 budgeting rule, this rule also separates money into three groups. Finance is grouped into the following categories:
- 70% of your income goes to living expenses.
- 20% to debt payments.
- 10% to savings.
While many people are new to the practice of budgeting and saving, considering the savings culture in South Africa, it is important that you choose the budget rule appropriate for you.
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