My golden rule of budgeting: budget liberally, spend prudently

  • Many budgeting systems don’t make sense whether you are earning too much or not enough money.
  • However, there is a rule that I live regardless of income: Budget generously, spend prudently.
  • By planning to spend more than you do, you can increase your savings and prepare for unforeseen costs.
  • Learn more about Personal Finance Insider.

A lot of the “rules” about budgeting don’t work for everyone. The 50/30/20 budget? I used to live in poverty and this ratio seemed laughable to me. There were times when I needed 100% of my income and then others just to cover my basic expenses.

And if you earn a high income, this method of budgeting always seems ridiculous to me. For example, if you earn $ 200,000 per year, that means your 50% for necessities will be $ 100,000 per year. Most people don’t have to spend that much on basic necessities.

Another example is envelope budgeting, which is when you withdraw money for specific expenses instead of using a credit or debit card. This works well for some people, but others find that they are more disciplined with a debit or credit card than with cash – although there are ways to implement the method. the envelope with plastic.

There are a few budgeting rules that actually work for everyone. However, there is one that has worked for me, whether I work below the poverty line or have a much higher income. It works whether I’m on a cash budget or swiping my credit card for airline points.

Budget generously, spend prudently

I consider liberal budgeting and prudent spending to be a golden rule. It sounds simple, because it is. The way it works is that you overestimate your spending slightly at first.

For example, let’s say you think you need $ 100 for gasoline this month. Gas prices are variable, however, so you should budget $ 150 for this item in your budget. But, just because you budget for higher expenses doesn’t mean you allow yourself to spend so much money – you’ll always be trying to save on gas.

You can do this by grouping your errands so that you drive less. You can also search for the lowest price per gallon in your neighborhood, while still applying the per gallon discounts you earned through your gas station’s loyalty program.

The goal is that by the end of the month, even if gas prices rise, your liberal budgeting and prudent spending tactics will leave you with a surplus.

Maybe after strategically shopping and maximizing your loyalty discounts, you’re only spending $ 102 on gas instead of $ 150. You can then pour that extra $ 48 into your emergency fund, investment accounts, or financial goals for the day.

Budgeting this way gave me leeway

Even when I wasn’t making a lot of money, this budgeting system worked for me. Yes, there were months when I realized I had a deficit in my budget.

But by projecting my spending a bit larger than expected, it made me fend for myself and use coupons to get by, rather than realizing only at the end of the month that I didn’t have enough money for it. pay for food.

This method has always given me a bit of a break when unforeseen expenses arise or when inflation suddenly increases the cost of groceries.

This explains the fact that even though we have the best intentions at the start of the month, our spending and saving behaviors can sometimes be out of step with those intentions.

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