Budget ratios

One of the most critical mantras in life is: take care of business before the business takes care of you.  In our case it’s important to take control of your budget before your budget starts controlling your life.  This means anticipating and setting realistic limits on fixed expenses (housing, transportation, savings) so that you can actually enjoy spending money on variable expenses (booze, entertainment, latest useless electronic gadget that induces foaming at the mouth).

There is no “one size fits all” budget that can be blindly followed to reach financial independence.  Everyone is different, some people have kids, some people have pets, and some people spoil their pets as if they were kids.  It would be unfair to expect everyone to follow the same budget.  On the other hand, overly complex budgets with dozens of categories (in addition to a user’s manual) are a waste of time.  The best cheddar ratios are the ones that are easy to follow.  What is the point of setting strict rules if you will keep breaking them? Unless you want to feel rebellious again.

The 60% solution is a great example of a simple budget.  Add up all of your fixed expenses and aim for those to equal up to 60% of your net income at the end of the month.  Divide the leftover money into four 10% categories: retirement, emergency spending, vacation and entertainment.  Rule of thumb budget ratios such as this one are great starting points to get comfortable with setting spending guidelines.

You don’t need to be all about business like Sly Stallone, take full advantage of the vacation and entertainment categories each month.  You worked hard for that cheddar, now go spend it on whichever marketing ploy has you most excited this month!

Advertisements

2 thoughts on “Budget ratios

  1. Great advice! I agree that there is no one budget that fits to every person’s lifestyle. I think the trick is to update your budget on a monthly basis – unexpected things always come up – that’s just life! Love your blog, very helpful content 🙂

    • Thanks for checking out the blog. Monthly updating is key, I actually enjoy doing it nowadays because it helps me see how much closer I am to my financial goals. Whereas before it was a bit depressing, now its fun.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s