How To Budget And Save Money As A Beginner [No, The 50–20–30 Rule Doesn’t Work Anymore!]
With easy-to-understand explanations and a fully customized budgeting template, this guide has it all!
You’ll agree that the one-size-fits-all approach simply doesn’t work when it comes to personal finance.
It’s your money, your life after all, and you deserve a personalized solution, right?
But if you google “How to budget and save money”, you’ll come across the same old advice: Use the 50–20–30 rule.
When I got into its details, I understood one thing for sure: Only the ultrarich in Panama Islands can follow this!
So, in this beginner-friendly explainer, I’ll guide you (no Stoic advice 😉) on how you can start budgeting and saving money with your first salary.
Here we go!
What Is Budgeting And Why It’s Important [No Boring Definitions, I Promise!]
Ok, so you studied hard in college, missed Season 9 of Game of Thrones and forgot the 14th day of February for those three (for some, it’s four) tiring years of life to get one single thing: A good college CGPA.
That good CGPA finally landed you a decent full-time job at your dream company. A dream come true, right?
Unfortunately, life always throws new challenges at you. Always. See, how I am getting philosophical in a finance blog? 😁
Anyway, once you get the first paycheck, you’ll be left with a mighty task at hand: how to meet all your expenses but still keep room for your guilty pleasures?
What you need is: A customized budget plan. Here’s how it looks:
Mint’s budget template. Whose salary is selected here? 😏
Don’t worry, I’ll share the link to a cool budget template soon. But for now, here’s how we can summarize budgeting:
Budgeting is a simple exercise where you mention your income on the side:
- Your salary
- You're freelancing payments
- Your business income
Or anything you get at a personal level vis-à-vis your personal expenses.
There’s a fundamental principle in costing that I want to share here:
“You can’t control your income, but you can control your expenses”
Controlling your expenses doesn’t mean living an aesthetic life. It’s a systematic way of handling your bills the smart way. And it’s the first step: classifying your expenses. Here are the three categories:
- Needs: Your Rent, Student Loan EMI, Food, basic clothes [which you need to wear at office and home. Party clothes not included 😤], your electricity and internet bills and of course, Netflix.
No Netflix isn’t included as you can live a month without Netflix, right?
[I can hear groaning already. If that’s very essential for you, keep it 😊]
But you have already got the point. The bills you need to pay to live a month fall into this category.
The interesting commentary here is that the Internet is both a necessity and a luxury. Whether it is your Game of Thrones or an important Google Meet, you need this digital oil all the time, right?
- Wants: Aha, your guilty (or justified) desires all fall into this category. So whether it’s the new iPhone, a pair of Sony headphones or a brilliant DSLR camera to fulfil your photography passion, all want you to want to fulfil because let’s admit it, these are the things for which we earn money, right?
If it’s guilty to want a dream house or a cool bike, then I’d better have that guilt rather than die paying all the bills. I want to drive a luxury car at least once in my life because that’s why I was born here 😤
I think you have got the point here. You have all the right to enjoy all your wants but if you manage your money right. And that’s what this guide is all about.
- Investments: We have finally landed on the meat of this guide. To fulfil your wants and to secure and enjoy your life, you need to know how to invest. And you know what’s the first thing you need to start investing? Let me guess some of your options:
- Memorizing all Warren Buffett Quotes-WRONG
- Reading “Rich Dad Poor Dad 3 Times-WRONG
- Set aside a decent amount to invest-That’s correct!
But how to set aside a “decent amount” every month? Isn’t that inflation rates are at an all-time high as of July 2022?
We are not here for negativity. Let’s explore the saving model we have at hand:
The age-old 50–30–20 rule: I criticized this rule in my intro. But what does it mean, and why it’s not good?
For starters, out there: the 50–30–20 rule means that *whatever is your income*, 50% of it should be spent on your needs, 30% on your wants, and 20% on investing.
This rule allows flexibility and sounds logical. So, what’s the problem?
Two basic defects:
- It doesn’t consider your income level
- It doesn’t take into account the rising bills thanks to inflation.
Can you actually meet your needs by allocating 50% of your income? The average American earns $50K-60K annually. It’s an average, so take this number with a pinch of salt.
And what’s the average household expenses? Wait for it…it’s over $5K per month. Again, it’s an average.
You do the math:
Your income: $4.2–5K/mo.
Your expenses: $5K+
And you think you can only allocate 50% of your income to your monthly needs? See, I told you that…50–30–20 rule isn’t for beginners like you and me.
So, what’s the solution?
See, it’s easy for me to say: Your income will rise over time and all that stuff. But this isn’t an option for you. At least not in the near-future.
If you are a fresher, you need experience to get a higher pay check. If you decide to learn new-age skills like video editing or podcasting, you’ll need a minimum of 2–3 years to expect a decent pay-out as a second source of income.
And this is the hard truth. Let’s accept it.
So, I will not offer you any 50–30 plan. Rather, I’ll guide you on how you can set aside “some money” to start investing for a secure and better future.
Yes, financial security isn’t a 21st-century fad. It is 100% possible, provided you learn and implement some basic budgeting principles.
The Budgeting Principles Schools Will Not Teach You [They are busy teaching about macroeconomics you can’t control!]
Quick Disclaimer: I’m not perfect, and neither is my advice. Be assured that my parents, or I am practicing all this advice, so you can implement it for good results. Let’s discuss my weaknesses in the comment section!
Here’s what the data says:
“64% of Americans live paycheck to paycheck, as per May 2022 LendingClub survey.”
So budgeting and saving money for unforeseen circumstances is quite rare. And to be an active member of this rare community, you need to know these rules:
- Track your spending, whether it’s on needs or wants. Use apps like Mint or Goodbudget or simply use a notepad. Practice frugality no matter what the party-freaks say. Look for budget options and see through the marketing gimmicks of big brands. Wholesale buying can be a good option.
- Exercise regularly. They say: Health is wealth, but the truth is that health is much greater than wealth. Being healthy keeps productive at work and saves a lot of unnecessary expenses.
- Don’t sleep on buying insurance no matter what the stock market gurus say. It’s the simplest way to secure future uncertainties.
- Once you start tracking your expenses, you’ll get a good estimate of what proportion of your income is used on wants and needs. Use this understanding to save a portion of your investments to meet your wants. No 50–30–20 rule can teach what your observation can!
- Your expenses eat up your salary as fast as they can. So beat your expenses by automating your savings.
- Get your family involved in your budgeting mission.
I found this brilliant piece on the Minimalist Financial System here on Medium! Read this and thank me later 😉
Here’s How You Can Start Budgeting: A Free Customized Template Just For You!
I promised it, and there you have it. Edit it as per your preference but use it religiously to reap its benefits.
Link: https://docs.google.com/spreadsheets/d/1X51HKQ5qR1s59ockynsriCl1XOvPaXrk_EzhYitmgkg/edit?usp=sharing
Wrapping Up: Budgeting Is The Need Of The Hour
Inflation is at an all-time high but the awareness about personal finance? I leave it upto you. It’s not taught in schools, but it’s more important than complaining about macro factors which you can’t control.
So here are the benefits you can realize from budgeting:
- It helps you to control your expenses before it controls your life.
- It helps you to pay off student loans, stay away from reckless spending and makes you more responsible.
- It helps you develop an emergency fund.
For those who don’t know, an emergency fund is a reserve of your 6-month to 1-year of expenses. If you lose your job and your earning stops, it’s this emergency fund that will save your back. You should have this fund saved in your bank deposits and other safe and liquid investment products.
- Budgeting helps you achieve financial freedom. Financial freedom isn’t your fancy dream of living your life by a beachside. Rather it’s the freedom to do the job you want to do and not living paycheck by paycheck.
I hope this guide will help you fight against a lot of misconceptions about budgeting. Follow me if you love reading helpful guides on personal finance. Subscribe to my stories so that you don’t miss any of my new stories.
Have a great day, readers!
