When you’re in control of your money and working on it together, you will have a stronger marriage and better relationships with your kids. How would your relationship with your spouse and with your kids change if those financial stressors were removed? Really take a moment and think about that future. How much stress is there in your marriage because of your financial situation? How much anxiety comes from feeling like you’re financially behind, in debt, and don’t have enough money in your bank account? But there are other benefits in life that come from it too. There’s no question that you will have a brighter financial future when you live below your means. The key question to ask is if spending this money now is more important than achieving the short and long term financial goals I want to reach? Benefits of living below your means Living below your means is saying yes to having money in the future. Once it’s out the door, it’s not there to go towards saving money, investing or paying off debt. Money that is spent can’t go towards building your net worth. One client said it perfectly, “Spending money is like transferring your wealth to someone else.” That’s exactly right. You’re not having to go into more debt to pay for your living expenses. In other words, you have money left over at the end of the month. Living below your means is when you spend less than what you make. Need help to figure out how to live below your means?.Two Simple Ways to Live Below Your Means.Count how many times you spend each day.Use a budgeting app to make it easy to track.Use the 125% rule for your house, home improvement, and vehicle purchases. Anticipation of buying something in the future creates excitement.If you’re confused about whether something is a need or a want, simply ask yourself, “Could I live without this?” If the answer is yes, that’s probably a want. It simply means being more conscious about your money by finding areas in your budget where you’re needlessly overspending. And if you discover that you’re spending too much on your wants, it’s worth thinking about which of those you could cut back on.Īs a side note, following the 50/30/20 rule doesn’t mean not being able to enjoy your life. Using the same example as above, if your monthly after-tax income is €2000, you can spend €600 for your wants. Entertainment subscriptions (Netflix, HBO, Amazon Prime).Wants are defined as non-essential expenses-things that you choose to spend your money on, although you could live without them if you had to. With 50% of your after-tax income taking care of your most basic needs, 30% of your after-tax income can be used to cover your wants. It can make it easier to reach your financial goals, whether you’re saving up for a rainy day or working to pay off debt. One question we hear a lot when it comes to budgeting is, “Why can’t I save more?” The 50/30/20 rule is a great way to solve that age-old riddle and build more structure into your spending habits. The exact percentages for each category depend on your personal financial situation, local cost of living, inflation, and many other factors. However, the 50/30/20 rule should only be used as a rule of thumb for budget planning. And with only three major categories to track, you can save yourself the time and stress of digging into the details every time you spend. The basic rule of thumb is to divide your monthly after-tax income into three spending categories: 50% for needs, 30% for wants and 20% for savings or paying off debt.īy regularly keeping your expenses balanced across these main spending areas, you can put your money to work more efficiently. The 50/30/20 rule is an easy budgeting method that can help you to manage your money effectively, simply and sustainably.
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