When we hear the word budgeting, the only thing that comes to our mind is calculation. Tracking expense comes at the top of the to-do- list during budgeting. Due to this reason, many people would like to skip the budgeting method as they do not want to track the expenses.
But there is no exception to budgeting if you want to save money and manage personal finance. It has been observed that people lose hold of his finance and fell into financial crisis many a time. However, one can borrow even from taking bad credit loans from the direct lenders of Ireland.
On the other hand, while you do not want to evaluate much, then the 80/20 budgeting technique will surely suit you the best. Actually, this budgeting method is not as complicated as the 50-30-20 ratio. So, without skipping the budgeting technique, know about it properly.
What is the 80/20 budgeting method?
There are different types of budgeting techniques. It is the easiest one among them as there is not much to calculate, and one may do it quickly. Basically, 80 and 20 denotes 20% of your income should come under savings, and 80% of your income should be left for the expense.
Actually, it is simpler than the 50/30/20 ratio budgeting method. Thus, an 80/20 budget evaluating structure is the best for those people who do not want to track their spending much. Besides, this type of budgeting method is suitable for beginners who never practiced budgeting on their own.
The Basic rule of the 80/20 budgeting method
As mentioned, this type of evaluation technique is the simplified method of designing budgets and managing finance. After following this budgeting technique, many people claimed that they are able to manage their finance successfully. It takes care of health insurance, emergency fund, and other miscellaneous expenses too after paying tax.
Unlike all the other budgeting methods, this process too works on the net take home. After paying tax, you get 80% of that income you may keep for expenditure when you get your salary. On the other hand, the remaining 20% you should keep for the purpose of saving.
As soon as you get your salary, either at the beginning of the month or on the ending day of the month, you need to segregate the amount. For example, suppose you get 2000 pounds per month. So, you need to set aside 400 pounds at once for the purpose of saving.
Now you have in your bank account only 1600 pounds. Try to complete the expenses from this left-out amount. This is the basic strategy of the 80/20 budgeting method. However, the primary purpose of such a budgeting technique is expensing as much as you want but only after saving money.
Calculation technique for 80/20 budgeting method
i) There is nothing to worry about while evaluating as per this technique. As it is too simple to calculate and no one ever needs to work hard. Firstly you need to multiply the net take-home by 0.2. What you get, as a result, you need to keep that much amount in the savings bank account.
ii) For instance, if your net take-home is 1000 pounds, then you need to set aside 250 pounds for the purpose of savings. After that, you will have in hand only 750 pounds to carry on the rest of the expense. But always one should remember that he must set aside the savings amount first.
iii) Many people who follow this technique are used to give standing instruction to their banks to deduct a specific amount of money from their salary for savings. In this way, you need not worry about saving money on your own. Your money will automatically pile up as per the instruction.
iv) However, to make the entire deduction process more effective, opening a Roth IRA account is better. It is a nice retirement plan which will drive out financial crisis during old age. However, a senior citizen can borrow on taking personal loans from the direct lenders of Ireland to drive out the financial crisis.
Most people who follow this 80/20 budgeting technique would like to redirect their money for a good retirement plan. But it will not work if you keep the money for the emergency fund. 20% of the amount will become too low to serve you in an emergency situation.
For this reason, this budgeting technique is suitable for those who have not approached middle age. For people who just started to earn money and whose salary is relatively low, such a savings plan will suit them perfectly. Therefore, if you are already in middle age, this budgeting technique is probably not for you.
It has been observed that people who have not entered into middle age and earning quite low have claimed that this 80/20 technique worked best. After some years, they can get more than 5000 pounds saved in their accounts, and it filled them with joy. Some people even claimed that they had utilized that lump sum amount in arranging marriage ceremonies or even invested in shares. So, you can begin the habit of saving money by keeping such a small amount in the bank account.
