Budgeting is an integral part of every adult’s life. Once we leave the proverbial nest, we must learn, all by ourselves, how to handle our finances. Unfortunately, most people rarely pick up on these skills all by themselves, which is understandable, as nobody actually teaches us how to budget. So, for anyone experiencing trouble with their finances, we hope that this article can help you to better budget your money.
Where to Start?
The first thing you will need to do is separate your expenses into two broad categories. As you can tell from the title, the two categories are “Wants” and “Needs”. So, what constitutes a “want”, and what is a “need”? Simply put, a “want” is what you would describe as a fun expense – glamorous clothes, the latest smartphone edition, a video game console, etc. A “need”, on the other hand, is something you must spend money on, including groceries, everyday clothes, electricity, water, heating, etc.
There are certainly gray areas when it comes to wants vs. needs. For example, in 2022, gambling online is becoming an increasingly popular hobby, with real-money online casinos growing much more prominent. However, not everyone treats gambling as a hobby. Quite a few people have become so proficient in cards that it is their primary source of income. So, budgeting for them would be a little different. All this is to say that the advice we give in this article is not set in stone. It can be adapted and altered to better suit your individual position.
Classic Budgeting Tactics
One of the most well-known systems for budgeting that has works for anyone is the 50/30/20 rule. The system is straightforward, which is one of the main reasons it gets recommended so often. Let us explain how it works, for anyone who might not have heard of it before. The system’s name comes from the percentages of your monthly paycheck that you should put forth into spending. The first number, 50, refers to the percentage of your salary that should go to your monthly needs. In other words, half of your money should go to necessities – paying bills, getting groceries, and any other necessities. The second number, 30, is the percentage that goes into your wants. Meaning with 30% of your monthly cash, you can treat yourself to something you’ve always wanted. And lastly, the remaining 20% ought to go into a savings account.
This system is hugely popular and an excellent way for anyone to quickly get control of their finances. However, as we said, it doesn’t necessarily work for everyone. For some people, “needs” and “wants” can get muddled. After all, to an accountant, the latest best-seller falls into the category of “want”. However, to an up-and-coming book critic still not established in the industry, purchasing the newest literature is an absolute necessity. So, adapt this strategy to best suit your lifestyle, profession and most importantly, your monthly earnings.
Gray Areas in Wants vs. Needs
Other gray areas exist when it comes to wants vs. needs. For example, categorizing food and clothing can be a real pickle. We all need food and clothes to get by. However, does that constitute dining out as a need? Well, no. Dining out is still a luxury that most don’t really need. None of this is to say that you shouldn’t dine out. After all, sometimes, we don’t feel like cooking, and sometimes, we want to celebrate. What we are saying here is that you should keep your budget in mind when deciding when and where to dine out.