When you were making your first budget in step 17, you might have felt it was a bit of a stab in the dark. Maybe you would have appreciated a simple formula that indicated how to allocate your money in a way that would just make it faster and easier to budget. A formula that also ensured you’d work towards you goals. Or maybe you were happy to rely on your own methods but would now like to find out about a general indicator of how much to allocate to each area.
In this step we are going to have a closer look at a very common concept in budgeting, the so-called 50 / 20 / 30 rule. I’d like to think of it as a guideline more than a rule, as depending on your financial position and your goals, your expense patterns change and you might spend more or less in certain categories at certain moments in your life. It is therefore wise to not just adopt but to adapt this guideline and adjust it to your own specific needs and circumstances. Continue reading →
Discretionary expenses are expenses for thing that you don’t absolutely need in order to survive or run your household. They are often optional (some would even argue unnecessary) expenses that mainly enhance your day-to-day life and make it more fun. Think about dinners at the restaurant, holidays and a trip to the cinema. To give a definition of a discretionary expense, it:
is an expense of a variable amount that you have more or less complete control over;
might or might not have a regular time interval;
is not needed for day-to-day living;
you can cut out all together relatively easily.
Discretionary expenses are usually the type of expenses that people cut back on first during tough financial times, and also the first ones that increase again when their economic situation improves. That coffee you get every day at Starbucks on your way to work? That’s a discretionary expense: you have complete control over it, you don’t need it for day-to-day living, and you can cut it out all together and make your own coffee when you get to work or bring one in from home in a thermos flask. Continue reading →