One rule is the 50/30/20 format. The theory is 50% of your income goes to housing and bills, 30% is allocated for wants and entertainment and 20% goes to savings, investments and paying off debt. It is a matter of balancing. For example, if you live in an expensive city and rent is taking up 70% of your income then you have to a) re-evaluate if can you live on the rest or b) look for solutions.
Another one is the 80-20 rule: 20% for financial goals as in savings etc. and 80% for everything else. That is the ideal.
Sadly, many of us can’t adhere to those rules. I live in Vancouver, BC, which is a very expensive city to live in. Too often, people don’t have the funds to be able to put away 20% of income. So what do we do? The best we can.
Personally, in the past, I would feel hopeless whenever I read these budgeting rules. I would feel desperate – with my income and debt load, there was no way I could afford to follow these guidelines.
Whenever I start to feel this way, I find that taking action makes me feel better. I couldn’t afford to put 20% away for savings but I wanted to start saving money. So I started putting away $5 a month then increased it to $10. It goes into an account that penalizes me whenever I take money out. I also put a little into RRSPs (registered retirement savings plan) every month.
I found lower interest rates on my credit cards which made it easier to pay off the debt. I started to control my spending. As I worked at it, I learned to make small changes without feeling deprived. It’s amazing that when you really look at what you are spending money on, how easy it is to cut things out that you don’t miss. Like cable TV. I watch everything online now. And that is only one example.
I am working to get to the percentages above but I am not there yet. I am also not going to stress out about it. I am happy as I am being proactive and doing the best I can.
If you would like to join me on the journey, check out my facebook group.
Do you need a speaker about debt reduction? Contact Karen here.
Karen is profiled in our Celebrate Audacious Series