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Revisiting your current spending habits and budgeting plan is essential with the constant rise in living costs. We suggest you choose a budgeting strategy based on your personal preferences and lifestyle to ensure you stick to it over the long term.

The 50/30/20 budgeting plan

This simple and popular model suggests dividing your after-tax income into parts 50%, 30% and 20%. Allow 50% of your income towards necessities, 30% towards your wants and at least 20% on debt repayment and savings. This approach should provide you with the means to spend something extra on yourself on occasion, place you in a position to afford those irregular and unexpected expenses, and help you work towards your financial security during retirement.

One may find distinguishing between your wants and needs difficult, and it remains a personal issue for contention. We suggest you include the following expenses in your needs category: groceries, rent/home loan, insurance, vehicle and travel costs, minimum loan repayments, and child care. Should your needs exceed 50% of the budgeting portion, you should recover this from your 30% wants allocation. Wants generally include all those expenses not essential for you to live and work. Should you spend less than 50% of your income on needs, you can use this to contribute to your savings. You can pay everything unexpected from your 20% savings portion, save for the future and pay off your debt.

The Zero-based budget

The first step in following the Zero-based budget is to look at your bank statements to help you track what you usually earn and spend each month. After that, the following five steps will guide you towards following this budget style.

  1. List your monthly income

List your monthly income, including your salary and any extra money you earn. Extra money can come from a part-time job or additional income you receive from renting out a house, maintenance money from your ex-spouse, etc.

  1. Make a list of your expenses

Looking at your bank statements can guide you towards establishing your average monthly spending. Consider what you spend on savings, necessities, spending money and fixed expenses. Remember to take into account any unplanned costs. You can occasionally lower your fixed expenses by revisiting them to find better cell phone plans, cheaper insurance, etc.

  1. Subtract your income from your expenses to equal zero

When you subtract your income from your expenses, does it equal zero? If so, you are within your budget – well done! If you have a positive number, even better. A positive number means you have extra monthly money left to add to your saving goals. A negative number indicates you overspend. To balance your budget, you should try to trim your planned spending amounts or increase your income by finding other ways to earn extra money.

  1. Constantly track your expenses

A budget is a living plan that constantly needs to be tracked and adjusted. Your income, expenses and priorities continuously change. You should know what you earn and spend each month, and then make sure to work that into your current and the following month’s budgets. Take note of every transaction to keep a record of what you spend.

  1. Have a new budget ready before the start of the following month

Your budget may not change in full from one month to the next, but making the necessary adjustments each month will prove to be more effective in the long run. Creating a new Zero-based budget beforehand will ensure that you are ready for what lies ahead and do the necessary planning and adjustments.

Follow the 30-day savings rule to assist in your budgeting strategy

This simple rule can help you stick to your budget and limit expenses. The practice is simple: as soon as you consider an impulse buy, stop to think about it for 30 days. If after 30 days you still want to make the purchase, you can continue. This rule will help you take the emotional aspect out of buying and give you some time to allow the money in your next month’s budget.

Budgeting should be a tool to help you manage your finances and provide you with the freedom to enjoy your life instead of being restricted by it. If your budget does not allow you to be flexible and spend money on yourself for enjoyment, chances are less that you will stick to it. Choosing a budget that works for you and fit into your lifestyle is therefore essential if you want to be successful in the long run.

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