If you haven’t tried to track your spending before, but want to plan your budget, this omission leaves you extremely vulnerable to the many unforeseen situations that can affect your financial security. A personal or family budget can help you save money, limit inappropriate spending, and achieve your future goals, such as a real estate purchase or renovation . For this reason, we have summarized a number of important rules for you that can help improve your financial status in the future.
Plan your own budget
Of course, there are ready-made formulas on how to manage your money intelligently and rationally. As in almost all other areas of life, our attitude towards money is the result of habits developed and established over time. The problem is that very few of these habits become reality. So most of them are shaped by a variety of external influences. These not only react badly, but often contradict our inner values and intentions. In such cases, sticking to a budget can be the key to gaining control over our own financial decisions .
Budgeting according to the formula “20-30-50”.
Are you familiar with the 50/30/20 rule? It’s all about how you can cover your living expenses with your income cover your living expenses with your income. This is the formula most commonly used by financial experts. So this is how you should spend your money according to its formulation:
- 50% of your income should cover basic needs.
- A maximum of 30% of your income can be used for things you want but don’t need.
- At least 20% of the income must be saved.
In order to maintain your financial capacity, spending only on request and for your own pleasure should not exceed 30% of your income. In addition, you may also need to significantly reduce this type of food if you are required to pay off your debts or do not yet have savings. Of course, the 50/30/20 ratio is a guideline that you should not apply with absolute accuracy. The financial needs of each of us are strictly individual, but in any situation it is important to know what type of spending you should prioritize. Determine the proportions you want and regularly monitor how well you are adjusting them.
Monthly expenses multiplied by 6
Do you have a savings deposit for unforeseen expenses? Experts claim that such a one should be six times your monthly expenses. Some of them even consider it necessary to set aside a reserve equal to the amount of your money spending for 12 months, while others speak of three months. In any case, all in the field of financial planning point out that such a step is necessary when you plan your budget.
Moreover, one fact is also that you never know exactly what will happen to you. People temporarily lose their ability to work, get fired or have health problems. So these are all situations that require serious financial reserves. So in any of these cases, you need rainy day white money that will allow you to get through difficult periods in your life without pain.
The amount of the mortgage
This is another formula for successful financial planning that will allow you to pay up to 30% of your mortgage income. That is, if you multiply your annual income by 2.5, this is the optimal amount you can take out as a mortgage.
120 minus your age – The investment form
When creating an investment portfolio, it can be difficult to choose assets for it. This is truly a difficult question, and often it costs money to move them around for better times. Fortunately, experts have developed the perfect formula that can optimize your positions. According to them, the percentage of funds invested in stocks is estimated at 120 minus your age. For example, if you are 40 years old, you need to invest 80% of the investment in stocks and 20% in bonds. As you age, you need to invest more in bonds and less in stocks. This is a relatively simple rule, but it removes unnecessary doubt when choosing an investment strategy.
Income multiplied by 25 for retirement savings.
How much money do you want to save for retirement? Some financial experts believe it is necessary to set aside 4% of your income for this purpose. This will allow you to save a sufficient amount at the time of retirement. If you follow this recommendation, your chances of saving a decent life until the end are high. However, this is a rather conservative approach, since your income in an active position will probably be much higher than your expenses. Moreover, no one can predict how high they will be after you retire.
Your annual salary multiplied by 10 – The amount of life insurance.
Sometimes it is difficult to determine how much your life will be insured. However, many people feel this is justified because life situations vary greatly and are not always favorable. Especially if you have a family with children , this is a good reason to think about how to insure your life. Thus, you can provide better financial security for yourself and your loved ones.