MoneyTheory is all about money, and of course personal budgeting is the start of it all – since my parents showed me how to save some of my allowance in my piggy bank before spending the rest on treats, I’ve known the importance of proper money management.
I’ve tried plenty of different systems for budgeting but I find this system not only the most manageable but the most sensible. The 50 | 30 | 20 system uses percentages to represent how much of your after-tax income can be allocated to different aspects of your life: needs, wants, savings and investments.
50% on needs: unless you’re in the top 1% income in your country, this will probably be the biggest adjustment for you. Keeping your rent, essential food, utilities and car payments to less of half of what you make takes discipline and planning, and maybe even angling for a raise or downgrading your lifestyle to something more manageable.
30% on wants: that is anything you don’t need to survive, and you have to be strict with yourself when dividing needs from wants: food is definitely a need, but going out for a gourmet meal counts as a want, because it’s not necessary. Magazines, cosmetics and even (gasp) internet counts as wants.
20% on savings and investments: if you’re a binary options trader, you’ll want to split this up into 10% of your after-tax income going towards your portfolio and the other 10% towards low-risk bonds or savings.
This way, you’ll always have money for the things you need, want, and for your future.