Successful budgeting lies in understanding the difference between a want and a need. You need a roof over your head and water. You do not need a pedicure or floor seats to your favorite basketball team. Wants are paid for out of your discretionary income. If you do not have enough discretionary income, life becomes real boring, real fast. A rule of thumb is you want 30 percent of your take-home pay to be budgeted for your discretionary income.
Successful money management requires understanding where you are vulnerable. You need to plug the leaks in your money flow before you can get a hold on your spending. Budgeting allows you to allot your money for specific monthly expenses such as savings, food, entertainment and gas. Once you hit the amount you planned for the month, you may no longer spend in that category without going over your means.
Rigid percentages are not helpful to a successful budget. Life throws curveballs and your budget must be flexible to pay for unexpected expenses. When setting up your budget, use the 50/30/20 formula as a roadmap for your money. Fifty percent of your income goes towards your fixed expenses such as rent, electricity and water. Thirty percent goes towards discretionary expenses such as your yoga classes, vacations and entertainment expenses. The last twenty goes into a savings account for your future goals and retirement.
Increase Your Discretionary Income
Depending on your income levels, 30 percent of your income may not be enough to live a fulfilling life. If you find yourself without play money at the end of the month, you need to increase your discretionary income. When money is tight, you need to cut unnecessary expenses such as lowering your cable package, eating out less often and removing unnecessary cell phone extras. If you cannot cut your expenses, you need to increase your income by getting a second job or selling unneeded items.
Credit cards are a danger to your discretionary income budget. If you do not have enough discretionary income to meet your wants, its easy to pull out your plastic and charge it. Credit cards compound the problem -- and then add interest -- because you must pay the expense off the next month lowering your discretionary income the following month. The Wall Street Journal recommends opening a separate savings account to fund larger discretionary expenses and funding it each month. Its far better to rely on the money in your pocket than borrowing from your credit card corporation’s pocket.
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