Being able to budget your monthly income properly can lead to a safe and secure financial future. Some financial analysts go by a rule known as the 50/20/30 rule which means no more than 50% of your income should be spent on expenses (housing, transportation, utilities and groceries). At least 20% should be allocated for financial priorities (retirement, savings and debt payments). The remaining 30% is for lifestyle choices, which is a mixture of allowance and bills (TV, internet, mobile, childcare, entertainment, gym and other choices). The 50/20/30 rule is a sound rule used by many individuals and recommended by some of the top financial analysts; however this rule can be made even simpler.
Limiting yourself to a certain percentage of your budget may be difficult which is why a simple breakdown similar to the following table is an easier way to budget your monthly income. We will use the example of an individual whose monthly income is AED 10,000:
|Total Monthly Income||10,000|
|Allowance (mobile recharge, petrol, entertainment, etc.)||1,000|
|Total Monthly Expenses||6,000|
After properly budgeting his monthly income, this individual is left with a surplus of AED 4,000. Some complex budgets will include items such as credit card payments, student loan payments, retirement plan investments and other items. In this particular case, the leftover income can further be broken up either into a savings fund, a vacation fund or other items based on his lifestyle.
Today’s financial complexity makes it important to properly budget the money you earn. Doing this today will help you plan for future events, such as weddings, buying a boat, investing in stocks and other financial decisions that require a rather large investment.
Here are some important tips for staying on budget:
- Make sure you include a line item for unexpected expenses.
- Focus on savings by depositing your budgeted savings into a separate account at the beginning of each month.
- Track your expenses to figure out where you can build up your savings.
- Be accountable to someone else about what you are spending.
- BE REALISTIC – if you know you’re going to be spending money on birthday gifts, or on eating out, include it in your budget.