Budgeting is the process of creating a plan to manage your money in a wise way. Having a budget helps you allocate your money for different purposes, such as managing day to day expenses, saving for the future, and paying bills. Budgeting methods may vary from person to person based on one’s financial goals, lifestyle, and preferences. We recommend using the popular 50/30/20 rule which involves dividing your income (after tax) into three main categories: 50% to needs, 30% to wants, and 20% to savings. Needs are expenses that are necessary for your basic living. This includes things like housing, groceries, transportation, and utilities. Wants are things that you would like to have, but are non-essential. This includes entertainment, dining out, a new bike, a video game, etc.
DEPOSIT: When you deposit money, you are taking money out of “spendings” and transferring that money into “savings”. This is similar to transferring money from your checking account to your savings account.
WITHDRAWAL: When you withdraw money, you are taking money out of “savings” and transferring that money into “spendings”, which you can then spend on your wants and needs.
Your SAVINGS should be used for saving money. It is ideal for storing money you don’t plan to use immediately since it offers a safe place to store your money while also earning interest.
Your SPENDINGS should be used for everyday interactions. Whenever you spend money, you are almost always using funds from your Spendings using checks, debit cards, or electronic transfers.
In real life, having financial goals is extremely important. These goals can be short term (such as saving for a new iPhone), intermediate (saving for your first home), or long term (such as saving to retire comfortably). Setting financial goals helps build wealth, stay focused and motivated, provide a sense of security, and prioritize spending.