Savvy Budgeting Tips For Folks on a Budget
Budget (Photo credit: Tax Credits)
Those living on fixed incomes often look at financial planning as an activity reserved primarily for the rich. Nothing could be further from the truth. In fact, those with limited financial resources often need more planning than their more monetarily well-off counterparts for the simple reason they have less with which to work. Folks who are struggling economically understand all too well the tough decisions that must be made regarding what can and can’t be purchased on a limited budget.
For these reasons it’s easy to feel overlooked in an economy that values big earners. But there are financial-planning systems out there ideal for a number of economic demographics, including and especially those who fall around or below the poverty line. One such system is the 50/30/20 budget method. Its appeal may lie in its simplicity, but make no mistake: those considering taking this route must make tough decisions to see results. Here’s how.
Begin with after-tax income
To begin the process, it’s crucial to first take stock of all gross pay minus all the taxes that are automatically taken out, such as SSI, disability and Medicare. Once this figure is clear, it’s time to start the budgeting.
Allocate 50% of that post-tax income to “must have” expenses
This includes things such as rent, groceries, gas and insurance. A good rule of thumb when trying to determine if something is “must have” is to ask whether or not the purchase can be postponed with no negative consequences. For example, there will be consequences for postponing a minimum payment on a credit card; there won’t be consequences for waiting a couple months to buy new shoes.
Allocate 30% of post-tax income to “wants.”
Obviously, something wanted is not something needed. Therefore, no more than 30% of the budget should go towards these kinds of purchases. These often include things like eating out, entertainment, vacations, Internet access (provided one doesn’t use the Internet for work) and cable TV. Many people find that the most difficult part of adhering to the 50/30/20 budget lies in this area. That’s because everyone is battling technological advances that offer desirable products and services seemingly everyday. The trick is bundling tech services and packages and limiting the amount of tech products (mobile devices, laptops, etc., etc.) purchased annually.
Allocate 20% of the post-tax income to savings and debt repayment
Another difficult portion of any budget has to do with debt and savings. Financial experts recommend that everyone – regardless of income – put a little money away each month. That’s because achieving financial independence is only possible through proper debt management and retirement planning. Building an emergency fund (ideally six months worth of gross income) is also recommended. The best way to accomplish this is by putting 20% of the post-tax monthly income towards debt and savings.
As mentioned above, the plan is simple but not easy. Many folks find that after initial calculations their must-haves fall into the 70-80% range. Working this figure down to 50% seems to be the biggest hurdle. However, it is possible, and through diligence anyone can achieve it. There are also supplementary options out there that can help an individual or family that is struggling. These include guaranteed payday loans online, title loans, or other forms of lending.
Christopher McMurphy is a freelance blogger specializing in the areas of finance, online marketing and SEO.
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Category: Budget
