Budget 101

James Justin Financial Health Leave a Comment

“Budgeting is not just for people who do not have enough money. It is for everyone who wants to ensure that their money is enough.” ― Rosette Mugidde Wamambe, Leadership, and Productivity Coach & Speaker With The John Maxwell Team

Do you know how to properly manage your money?

I remember when I left home for college, I had a hard time managing my personal finance. Like most young people in my circle, we didn’t know anything about money. I spent most of the money I had by mid-month and had to call my parent for more money. It wasn’t until I discovered the 30/70 rule that my personal finance made a turn for the best. Using accounting applications such as Quicken and Mint.com made it easier to manage my money. These tools help me organize my financial records and can help you do the same.

In pursuing financial freedom, it’s important to manage or budget your money in other to maximize it. According to investopedia.com, a budget is an estimation of revenue and expenses over a period of time (usually for the calendar year). Individuals, businesses, and governments utilize budgeting to project or plan their incomes and expenses.

In the process of discovering how to manage money, it’s critical to realize that “it’s not about how much you make, it’s how much money you keep.”

You can make a million-dollar-per-month and have zero-dollar financial net-worth if you spend it all.

In contrast, with proper money management, I can have a positive net-worth with a $500,000 monthly salary when I invest just 10% of my money.

The more you plan and control your money, the more you can use it to build wealth.

One of the best models wealthy people use to plan and manage their money is the 70/30 rule.

What is the 70/30 rule in finance?

The 70-10-10-10 rule or the 10-10-10-70 rule is a budgeting strategy popularized by the late Jim Rohn. The idea is really simple. You take your net income or money you bring home and split it into four groups as listed below:

  • 10% for tithing (giving, donating to your church and favorite charitable organizations)
  • 10% for saving (emergency saving fund and retirement)
  • 10% for investments (money for financial education, to buy real estate properties, to start a business, to buy stocks, or to buy other investment products )
  • 70% for monthly living expenses (such as housing, foods, utilities, fun)

For example, if your take-home income is $10,000 per month, you’ll divide it as follow:

  • $1,000 for giving
  • $1.000 for saving
  • $1,000 for investing
  • $7,000 for spending

In this budgeting model, we use percent to accommodate individual income or fluctuations. Since our income may increase or decrease, calculations based on percentages help us deal with fluctuations effectively.

What should I do if I cannot follow the 30/70 rule?

If for any reason, you can’t follow this budgeting principle, start where you are now. You can always start by giving 1%, save 1%, invest 1% and spend the remaining 97% of your income. The idea is that you start now and make progress toward your goals. If you can’t even give, save, and invest 1%, start with $1 on each category. While you’re improving your spending habits, start practicing your version of the 30/70 rule.

Remember, the 30/70 rule in finance is designed to help us give, save, invest and spend our money intelligently.

It doesn’t matter how much money one makes, we all can use this principle to maximize our money.

I encourage you to start managing your money today!

Use tools such as Mint.com to help you track and manage your finances effectively.

Whatsoever, you don’t track, you can’t manage, and whatsoever you don’t manage, you’re likely to lose.

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