Write about your approach to budgeting.
A rule of thumb about budgeting approaches is to spend every month less than you earn. In other words, you have to resign yourself to live within your means. That seems pretty basic but in practice may be hard to achieve. But believe me, you will do well if you commit yourself to it. If not, you might find yourself with a huge debt in a short time. You might end up paying more interest than you can afford. And it’s hard to get out of this situation once you are in it.
You can break down this approach in what people refers to the 50/30/20 rule. In this method, you take your after-tax income and assign it according to these percentages:
- 50 % for needs (housing, food, utilities)
- 30 % for wants (entertainment, hobbies, small indulgences)
- 20 % for savings, investments or debt repayment
You can adjust the percentages to reflect your reality or situation, but try to not go too far from them.
GnuCash
There are several apps for you to track where you are spending your money. One of the most comprehensive, but not always the most intuitive, is GnuCash. Nevertheless, I recommend it and it’s the one I use. It’s a free accounting software licensed under the GNU GPL and is available for multiple platforms. Its most important characteristic is that it uses the principle of double-entry accounting. It means that credits must match debits. You need to account for any money that you earn. This includes things that you need or want (your expenses) and your savings (your assets).
Government tools
During my research for this, I found some very cool tools. Governmental agencies prepared them to help citizens spend their money under a budget.
- Making a budget by the Government of Canada
- Tips for budgeting to meet your financial goals by the Government of the USA
- Como eu faço um orçamento pessoal ou familiar by the Government of Brazil
I know it’s tempting to spend money in things that you don’t really need. But if you have a budget, it can help you understand where your money is going. And spend it more responsibly. I hope you can introduce some of these budgeting approaches in your financial life.