The feeling of taking home your first pay check is hard to describe. It is invigorating, freeing, liberating – you feel on top of the world. And what usually follows is a shopping or spending spree. Before you know it, you are flat broke; it is the middle of the month, and you are barely getting by as you await your next pay check.
Before you reach out and fill up that credit card or payday loan application to help pull you through, explore percentage budgeting to keep your personal finances in check.
Percentage budgeting involves dividing your expenses into percentages of your total income and then splitting your income to fit those percentages. When spending, you will require discipline and willpower to stay within your budget, but once you do, you are on the path to financial freedom.
How does it work?
Let’ say you take home a salary of $1500 per month. Your expenses may consist of rent, transportation, meals, entertainment, clothing, savings and helping the needy. For percentage budgeting, you allocate a certain percentage of your salary to each expense.
For example, rent could take up 25% ($375), transportation 10% ($150), meals 15% ($225), entertainment 10% ($150), clothing 10% ($150), savings 10% ($150), helping the needy 10% ($150) and miscellaneous 10% ($150). The key to making sure that you do not go over your budget is only to spend what you have allocated for each expense.
Now these percentages largely depend on your personal lifestyle, and the suggestions above are simply a guideline to give you an idea how percentage budgeting works. Some general rules should apply for this system of budgeting to save you money.
Making Percentage Budgeting Effective
First, always put away your allocated savings first. A 10% minimum saving of your monthly income is recommended, but if you can go higher, please do. These savings will come in handy when you need to buy big ticket items, or if you have an emergency.
Also, allocate a percentage of whatever you can manage to give to the needy. Cosmically speaking, anything you give always finds some way to get back to you.
Next, try to make sure that your rent is never more than 25% of your income. When your rent is too high, it is extremely difficult to save, and you may live from hand to mouth.
Make sure that there is a percentage put aside for miscellaneous expenses. You can plan for all the variables you expect to encounter, but there are unexpected expenses that come up which demand money. If you do not put aside some money to meet these expenses, when they arise, you might experience incredible stress, especially if you are rigidly sticking with your budget.
Percentage budgeting is easy to follow and helps you plan to spend and live within your means. Its main requirement is discipline, and a willingness to investigate methods that will help you stretch your income to meet all your needs.