Welcome to adult life! Sucks, doesn’t it?
It was easier being a kid with just assignments and exams to take care of. No responsibility has been extended to paying bills, credit card debts, buying groceries and basically managing 100% aspects of your life.
A new job and a new life have challenges of its own. In this journey ahead, your finances are going to be your biggest supporter and worst troublemakers.
When you would handle your money well, you would be able to save enough to fall back on during emergencies. But when your expenditure would be more than your income, you would be forced to rely upon loans for bad credit for instant cash.
Why is Budgeting Advisable?
We live in a world of uncertainty and unpredictability. It is hard to guess when random expenses would come knocking at the door. That makes it dangerous to live on a hand-to-mouth policy.
When you organise your finances, you are making sure that you do not fall into a financial pit when emergency calls. Disciplining your expenditure is a smart way to handle your income.
You can paint a clear picture of your avoidable expenses by maintaining a track record of your incomings and outgoings. And when you know about your unnecessary spending, you can put that money directly into your piggy bank.
Budgeting is your financial organiser. It is vital today. Every earning individual must follow a designed budget unless one is a millionaire of course.
The 50/30/20 Budget Rule
“The 50/30/20 budget rule is to divide the after-tax income of a person, by spending 50% on needs and 30% on wants, while dedicating 20% to savings.”
For instance, assume that your after-tax income is £8,000 per month. Then, you would split it into £4,000 for your monthly needs, £2,400 for your leisure expenses, and the remaining £1,600 for your savings and debt repayments.
This budget model has been extensively tested by people around the world. It provides a perfect balance to finances and saves you from draining your hard-earned money.
Flexibility in the Rule
The 50/30/20 budget rule is not set in stone for people. Everyone has a different financial status. While some need just 40% of their income for their utilities, others might utilise 70% of their salary.
The rule is just a basic model to start with. You can go on bending the parameters based on your needs and income. It is obvious that each individual has contrasting financial circumstances.
The rule is flexible and can just be considered as a reference to look up to. It is just that a budgeting novice needs somewhere to begin from.
What if the Rule fails?
There can be exceptional situations when even this rule fails you. An extravagant expense may rise in your life- a medical emergency or possession of your property.
Under such circumstances when your savings are not enough, you would simply need to borrow money. Most likely, your options are going to be
- your family or friends (may or may not fulfil your exorbitant demand),
- taking a bank loan (would take a long time and might not approve due to bad credit score or no guarantor),
- contacting an online direct lender (interest may be high but with no fees and instant approvals),
- taking out a mortgage (risk of repossession),
- selling something (losing something valuable).
Each option in front of you would have a drawback and an advantage. It is up to you how you weigh the scales.
While the 50/30/20 budget rule has worked out quite well for the beginners, it is just the first milestone in the long financial journey.