One of the most difficult things that I’ve ever had to do when it comes to my finances is to set a budget and actually stick to it. I have found that when it comes to personal budgeting that less is more, and what I mean by this is that the less you have to nitpick and scrutinize the happier you are and the easier budgeting and more importantly saving seems to come. The easiest method that I’ve found to budget is the percent-based method. I’ve been budgeting this way for 6+ months and I absolutely love it. Let me list some of the reasons why I find this method of budgeting the most superior that I’ve ever tried.
- flexible with earnings increases
- easy to set up automatic savings
- percentages easier to remember than dollar amounts
So what exactly is this percent-based method of budgeting, or as I call it “My 33% Savings Plan?” It’s quite simple really. I’ll make up some numbers as an example (and to avoid complicating things I’ll pretend this is a perfect world and there is no such thing as taxes or health insurance). Let’s say that I just graduated from ASU and got a job at Apple working for their finance department. My starting salary is going to be $50,000 a year (again I’ll be keeping things simple, so my net salary will be the same as my gross salary). I decide that I’d like to save 33% of my salary, and the rest can go towards living expenses and be my mad money. So $50,000 x 33% = $16,500 a year or $1,375 a month. This leaves $33,500 (or $2,792 a month) a year to go towards a mortgage (or rent), food, utilities, insurance, a car payment and spending money.
I told you it’s easy, didn’t I? I really like this method because of the flexibility it offers. For example let’s say that I get a $5,000 bonus from Apple during my first year of employment. Technically this whole amount could go towards savings, but what’s the point of having money if you never use it? Assuming that I have no debt other than my mortgage (because of course if I did I’d probably want to apply a large chunk of this bonus to my debt), why not just save 33% of the bonus, or $1,650 and spend the rest? Maybe I could buy some new furniture, or invest in some exercise equipment or buy a new laptop computer. Of course this same principle could be applied to a raise or an annual increase. The more money you make the more you can save and the more you can spend!
…just because I choose to save 33% of my take-home income, doesn’t mean for any reason that you should feel the need to do so. Feel free to adjust the percentage amount that you’ll be saving to most fit your needs.
Of course just because this method of budgeting sounds easy on paper (or on the screen really) doesn’t mean that it doesn’t require discipline. If your current spending habits don’t allow for you to save at the very least 10% of your income you’ll have to keep track of your spending for a few months and see where you can cut back on expenses. By saying this I also mean that just because I choose to save 33% of my take-home income, doesn’t mean for any reason that you should feel the need to do so. I have large financial goals I’m shooting for and I feel that 33% will help me accomplish them much more quickly. Feel free to adjust the percentage amount that you’ll be saving to most fit your needs.
One last thing I recommend is setting up an automatic savings plan. One easy way is to set up your direct deposit to automatically deposit your chosen savings percentage into a savings account or money market of your choice. Another way would be to have all of your income deposited into a funnel account and then funneling all of your savings into a designated account (or accounts). I personally prefer to funnel my money into different accounts once it’s deposited into my main checking. I think that I will cover my funneling techniques in a later article for all of my loyal readers.