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Saturday April 20, 2024

Tired of soaring prices? Rethink your budget as traditional formula no longer applies

Old method advises splitting your income 50% for needs (rent, food), 30% for wants (clothes, games), and 20% for savings

By Web Desk
March 20, 2024
Representational image. — Unsplash
Representational image. — Unsplash

You know about the renowned 50/30/20 budgeting method? 

Everyone does. 

The traditional saving method was once hailed as a financial beacon by Senator Elizabeth Warren. 

The method advises splitting your income 50% for needs (rent, food), 30% for wants (clothes, games), and 20% for savings (the future you!). But, under the changed circumstances when things are pricier, the formula might not cut it anymore. Families are grappling with soaring expenses. 

If you are not pretty well-off, what is your condition? 

Rent takes up more than half of your family's income and groceries cost way more than last year. Under these conditions, it seems impossible to save 20% of your income. Hence, financial experts suggest that it's okay to adjust the formula. They propose the new model of 60/30/10. 

Brian Walsh from SoFi said this adjustment may offer a more practical starting point for those striving to manage their finances effectively, particularly for individuals living paycheck-to-paycheck.

Basically, you might need to spend 60% on just getting by, as housing expenses, and other essentials like food and utilities are also on the rise. It is beneficial to adhere to budgeting guidelines but it's equally important to remain adaptable in the face of changing financial landscapes, notes Kevin L. Matthews II.

“It’s important to have rules of thumb and structures that can help guide us and get things organized, but there aren’t any rules that are written in stone, and that’s important to know,” Kevin L. Matthews II, founder of the financial education firm BuildingBread, told Time. “[But] it’s important to be flexible.”

It is bad. But it reflects how expensive things are right now. 

But you can still save. 

Experts say 10% is a good starting point for you to save. Even in tight financial circumstances, Michael Finke advises saving as little as 6% of income, especially when matched by an employer.

“If you’re a young adult, 60/30/10 is just fine,” Michael Finke, professor of wealth management at the American College of Financial Services, remarked. “Then you can gradually, as you reach middle age, increase that savings rate.”

The financial czars also suggest cutting down on wants. They say that a new phone case or daily coffee can wait. 

Some individuals have found success trimming discretionary spending, reevaluating their 'wants' to achieve substantial savings. Chrissie Milan, for example, managed to save ,000 by cutting back on non-essential expenses like clothing, daily coffees, and dining out. She found out that she actually enjoyed cooking at home with friends! 

Milan's saving experience highlights the value of prioritising needs over wants. She discovered contentment in simple pleasures. So, if you reassess your spending habits and accept frugality, you can uncover find the freedom and resilience in the face of economic challenges.

Remember, budgeting isn't set in stone. So be flexible. 

The key is to be smart with your money, even if it means saving a bit less for now.

So, what is the key takeaway for you? 

You should focus on what's important and cut back on unnecessary spending. That's how you can save for your future and maybe even grab that new game you've been eyeing.