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The Balanced Money Formula (Episode 1)

balanced money formula

All job, no games? You do not have to live this way since the Balanced Money Formula can come to your rescue. There is even a book on this formula which offers to roughly divide expenses into three categories. The three of them include the needs, the wants, and the savings. It is pretty simple; you just need to take your after-tax income and divide it into the following parts:

  • Spend no more than 50% on your needs
  • Spend no more than 30% on your wants
  • Put aside about 20% as your savings

It is sometimes really hard to figure out how much to spend on groceries, on medical bills, and other stuff. Thus, the Balanced Money Formula can help cope with all this stuff.

Restricting your needs

Spending less than 50% on your needs can be hard at first. You might ask what is listed as our needs. Well, rent, transportation, health insurance, groceries, basic clothing, utilities can be in this list. Staying within that 50% limit can help save for a rainy day.

Cutting off some of your wants

The good news here is that one does not have to live miserably just to save some money. You can spend no more than 30% on the things you just want. Unlike the needs, the wants can really vary depending on your personal choices. The wants can include holiday trips, eating out, fashion clothing, expensive cars, hobbies, and even cable TV and a smartphone. The Balanced Money Formula does not deprive you of these fun things. You just need to prioritize them to not go beyond that 30 %. For example, you might end up choosing fashion clothing instead of cable TV. Still, you will feel happy since no one tells you to eliminate the fun activities or fancy things of your routine.  It’s understandable that creating a chain of deprivations is not the way we want to live.

Saving for tough times

Whether you are saving for tough times or to pay a debt, this formula can help you. I would even suggest reversing the amount you spend on your wants and the amount you put aside. As a result, you will save 30% of your net income and will spend only 20% on your wants. This will be especially useful when paying off a debt or when preparing for retirement (in your thirties or more).

Can I do this?

It depends on your desire and your income. These are really tough times where many people hardly manage to cover their needs with their income. But if you get a decent salary, then why not give it a try? If you think this money saving formula is not meant for you, do not get disappointed. I am going to write a series of several different money saving formulas that can help you save in a more smart way. Stay tuned and follow our blog for more articles.

Also published on Medium.

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