Use this trick to improve your budget

October 10, 2017
You plan your budget based on expected monthly or weekly expenses. Many people do not have the financial discipline to even do this, so planning such a budget can certainly be considered a personal finance success.
Use this trick to improve your budget

The problem with planning your budget this way is that you will eventually be hit with unexpected expenses or your situation will change (a rise in rent, a new job, fluctuating gas prices, etc.). You can deal with occasional unexpected expenses by getting an online personal loan. These loans are ideal because the application process is easy and approval is not tied to your credit score.

Another thing that you can do is give your budget a bit more flexibility. Instead of planning for each expense separately, you can use ratios to help you with your planning. One of the most common personal finance ratios is written like this: 50/20/30.

What does 50/20/30 mean?

  • 50% of your money should be used for fixed costs. This includes your rent or mortgage, car payments (if applicable), other loan payments, utilities (electricity, for example), cell phone bills, and so on. Any bill that is the same (or similar) amount each month should be put in this category.
  • 20% of your money should be used for savings or self-investment. By self-investment, we mean education or certification courses that can help you improve your earning potential in the future. This 20% segment should also include savings, money for investments and contribution to an “emergency fund.” Do not worry about the amounts of these contributions too much. The important thing is to set aside 20% each and every month. Your emergency fund does not need to cover every unexpected expense. Rather, you can use the money in this fund to help you pay off your online personal loans more quickly.
  • 30% of your take-home pay should be used for “variable” expenses. What falls into this category? It covers all the expenses that are not the same every month. This includes food, gas, travel and entertainment. Basically, anything that does not fall into the 50% or 20% categories should be put here. This will give you flexibility to change your budget if needed. If gas prices rise, for example, you can cover the cost of filling up your car and, perhaps, skip a trip to the restaurant or movie theater to stay within your 30% for the month.

There are several ways to plan this kind of budget. One is to use an online tool where you can keep track of your spending. Another is to use different accounts or forms of payment for each segment. For example, you could use a checking account to pay for the 50% fixed spending category. Then, you could put the 20% segment in a savings account, and use cash or a separate debit card for the 30% flexible spending.

With this plan, you will have the flexibility to adjust your budget and you will not be frustrated if some of your expenses change from month to month.