Budgeting myths
- Myth - I don't need to budget: A budget focus on identifying all the expenses that are likely to occur during the month, quarter, and year. A budget can identify costs that could be reduced or cut.
- Myth - I'm not good at math: Budgeting software only requires you to follow instructions.
- Myth - My job is secure: You should always be prepared for a job loss and have at least three months' worth of living expenses in the bank. With budgeting, you will know how much you spend each month.
- Myth - Unemployment insurance will tide me over: You may be ineligible for unemployment insurance or the benefits may fall short of the amount you need.
- Myth - I don't want to deprive myself: The aim of budgeting is to tell you where your money is going and ensure you're able to save a little each month, ideally 10% of your income.
- Myth - I don't have anything big to save for: While you may not have any major savings goals at present, your situation and attitudes are likely to change over time.
- Myth - I'm debt-free: However, being debt-free without any savings won't pay for an emergency.
- Myth - I always get a raise or tax refund: It's never a good idea to count on unreliable sources of income.
- Myth - I don't have the discipline: To protect yourself from your own spending habits, set up an automatic transfer to a savings account.
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"Making money is art and working is art and good business is the best art." ~ Andy Warhol
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The 70:20:10 budgeting method
This method suggests that you allocate 70 percent of your income to expenses, 20 percent to savings, and the remaining 10 percent to debt.
70:20:10 may work for someone with a healthy emergency fund and minimal debt.
Allocating expenses
The most common buckets are:
- Expenses, or your needs: housing, food, transportation, clothing, insurance, childcare, etc.
- Debt - monthly debt obligations: personal loan, student loan, auto loan, and credit card payments etc.
- Savings, including fund...
The 50:30:20 budgeting method
Under this method, 50 percent goes to expenses, 30 percent goes to wants, and 20 percent goes to a combination of debt and savings.
A person with a healthy amount of disposable income but loads of debt could probably benefit more from the 50:30:20 method.
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