The 80/20 Budgeting Method
Simplifying Budgeting with the 80/20 rule.
Budgeting can be a real downer, right? You’re told to write down every single penny you spend, and suddenly you’re feeling all guilty about that extra shot of espresso in your latte.
But it doesn’t have to be that way! In fact, budgeting can be a fun and simple process if you use the right method. And that’s where the 80/20 budgeting methods come in!
Just picture it: you can sit down with a glass of your favorite drink, take a deep breath, and let the budgeting magic happen. You don’t have to sweat the small stuff!
You’ll be saving money, having fun, and still be able to enjoy that extra shot of espresso in your latte without any guilt. So let’s get started and see what makes this method so special!
The 80/20 Budgeting Rule
Are you tired of traditional budgeting methods that are complicated and leave you feeling restricted? If so, the 80/20 budgeting rule might be the solution you’ve been looking for!
This simple yet effective budgeting method is easy to stick to and maintain, flexible, and prioritizes savings, making it a great fit for people who are new to budgeting or who find more structured budgets to be stressful.
How does it work?
The 80/20 budgeting rule is a spin-off of the 50/30/20 method. It simply states that you should put 20% of your take-home pay into savings or investments, and the remaining 80% should go toward your expenses. Your take-home pay reflects your income after taxes, health insurance premiums, and any other expenses that are taken out of your paycheck.
Saving money and making it grow is the most important financial objective, and the 80/20 budgeting rule prioritizes it.
This way, even if you end up spending a little more on housing and a little less on your car or vice versa, as long as you are putting aside enough money to build wealth and accomplish financial goals, you are on the right track.
Now, let’s get into the specifics of how to implement the 80/20 budgeting rule. The rule of thumb aims for simplicity, so to use it, simply multiply your take-home pay times by 0.2. The result is how much you should put into savings
Say, you make $1,000 of take-home pay. Multiply that by 0.2 and – voilà! Now chuck that $200 away.
The 80/20 budgeting rule is also incredibly simple. There is no need to make a list of dozens of different things you spend money on each month, nor is there a need to decide in advance how much you’re going to spend on each category.
The only definite requirement is that you save 20% of your income, and as long as you do that, you’ll have accomplished your most important financial objective.
Flexibility is another huge benefit of an 80/20 budget. If you have a budget where you have set specific spending limits for every different type of expenditure, then you can find yourself in trouble when things don’t go as planned.
For example, if you budgeted a certain amount for groceries and then inflation sends prices at the store skyrocketing, you’d have to rework your entire budget. But with an 80/20 budget, you can simply spend what you need on groceries and then stop spending on other non-essentials that month once you’ve reached your 80% spending limit.
This budget is not for everyone, however. Some people may find that they overspend if they don’t have detailed limits for where their money should go.
Still, if you set up an automated transfer to savings for 20% of your income, and you can live on the rest of what’s left over without having to borrow, then there is no reason to get any more detailed with your budgeting process.
Also keep in mind that the 80/20 rule of thumb is a general rule, and your results may vary. You may have financial priorities that don’t fit this guideline, so it’s important to view the 80/20 rule as the minimum you should save. The more you can save, the better.
- The 80/20 budgeting method is a simple and flexible way to budget, focusing on prioritizing savings.
- It involves putting 20% of your take-home pay into savings and investing while using the remaining 80% for expenses.
- This method eliminates the need for detailed budgeting and allows for flexibility in case of changes in expenses.
- The 80/20 rule of thumb is a general guideline, and individual results may vary.
- It is important to view the 80/20 rule as the minimum amount to save and to aim to save more if possible.
The key-takeaways/market update is a series by AxeHedge, which serves as an initiative to bring compact and informative In/Visible Talks recaps/takeaways on leading brands and investment events happening around the globe.
Do keep an eye out for our posts by subscribing to our channel and social media.
None of the material above or on our website is to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument. Investors should carefully consider if the security and/or product is suitable for them in view of their entire investment portfolio. All investing involves risks, including the possible loss of money invested, and past performance does not guarantee future performance.