2.26.2015

The Percent Game: What you Need to Know

Budgeting



When if comes to budgeting there are many, many methods to divide up your money.

Some are simple: Use it until it is gone.

Some are complicated: Live on 50% of income, use 8 checking accounts, invest this amount, pay half.

Some require a lot of calculations: 80/20, 70/30, 50/20/20/10.

So what is the percent game really about and how should you actually use it?

Let's find out!







What is percent based budgeting

Percent based budgeting is taking your total household income and choosing to live off of a certain percent (50-80%). The leftover percent goes towards savings, giving, or additional towards paying off debt.

When to use a percent based budget

I normally decide when to use a percent based budget after creating a zero-based budget. When creating a zero-based budget you will see if there is an abundance of leftover money or if there is a small amount of leftover money. Seeing a large amount leftover to disperse towards savings and debt means that I can easily put 20 percent of income towards one or the other (or both). It is much more typical in my case to see a negative or very small amount of money leftover to put towards saving or debt, therefore, not using a percent based budget because the amount of monthly expenses and debt are already taking most of the income.

Why use a percent based budget

This answer is pretty basic. If you set up your budget to live on only 70 or 80 percent of your income then you will either be saving, giving, or paying off debt with the other 20 or 30. Using this method is great for those that are not living "paycheck to paycheck" and would like to focus on making their work the hardest for them.


How to calculate a percent based budget

I have two ways one for the person that has and extra 20/30 percent leftover after paying all bills and expenses and one for those that don't but still have enough to put 5/10 percent toward savings or debt.

Calculation 1
Income: $2000.00/month
Live on 70%: $1400.00
Save 20%: $400.00
Give or Pay Debt 10%: $200.00
Leftover: 0

Calculation 2
Income $2000.00
Subtract all debts, bills, and monthly expenses
Leftover: $350.00
Savings 50%: $175.00
Debt Pay off/Giving 50%: $175.00

In calculation 2 the leftover income is less than 20% but they still needed to tell the money were to go. Instead of spending it unwisely there the money is benefiting a financial goal.


There is no right or wrong way in how you disperse your money. There are much simpler ways to do it and I believe the simpler the more likely you are to stick with it!

XX,

I am sharing this post over at The Frugal Family Diaries Fabulously Frugal !


Percent Based Budgeting and what you need to know