Budgeting Rules To Keep In Mind For Single Or Married People6 min read
The moment we become aware that money is needed to survive every single day, we learn how to budget. A list of budgeting rules to follow is important as it guides us on how to efficiently utilize the money we earn.
Different phases in your life require a different approach toward budgeting. The method you use while you are still single will change when you get married as your responsibilities will grow. Nothing is constant but change, and the same rings true for your financial obligations.
To equip you with the best budgeting tips and how to live like a pro as you progress with life, here are some guidelines to live by.
What is budgeting?
Budgeting is creating a balance between one’s expenses and income. Formulating a plan on how to spend your hard-earned money is the key to be financially responsible.
On the other hand, your spending strategy is called a budget. Planning helps you control your funds in advance. Knowing the difference between needs and wants is the key to creating an optimal budget.
Carefully identifying both will familiarize you with your essential spending. The excess can be used for savings and buying some of your wants.
Top budgeting hacks in the Philippines
Below are tested and proven budget plans to help you with your finances. Applying the following methods will guide you safely and comfortably, lessening your stress and anxiety.
1. The Debt Rule: 28/36
The Debt Rule: 28/36 or also known as debt to income ratio (DTI) can be used to check if you are overspending too much on your daily expenses.
This rule can be used if you are planning to buy a house or other property as it can positively influence your ability to pay for the loan while controlling your excessive spending.
The method is simple: 28% of your annual gross income should be allotted for housing expenses, while 36% is meant for your existing debts or paying for necessities.
To further explain, 28% will be used to pay for your home’s property taxes, monthly principal, and all related fees concerning the acquisition of your residence.
Simply add your monthly mortgage and all expenses that require monthly settlement then determine if it’s no more than 28% of your gross income. For example, if you are earning P250,000 yearly, 28% of that, or P70,000, should be used to settle your housing costs.
If you are capable to pay, you may proceed in buying that dream house. Finding an affordable alternative is highly suggested if the result is uncertain.
On the other hand, in reference to the example above, 36% of P250,000 is P90,000. This amount should be enough to pay for existing debts such as credit cards, personal loans, and the like. If you go beyond the specified amount or the result is over the 36% allowable percentage, reassess and adjust. You are spending too much on debts.
2. The Car Loan Rule: 20/40/10
Planning to apply for a car loan? Consider the 20/40/10 method as it will evaluate paying capacity in acquiring a car loan.
Following this rule means 20% should be used as a downpayment for the vehicle. Four years is the highly suggested length to pay for the loan and spend only 10% of your gross income.
To elaborate, a 20% down payment is ideal as it will keep you away from paying more monthly. Opting to pay for four years lessens its interest
To lessen your automobile interest, keeping your loan under four years is ideal and cost-efficient. Opting to settle it beyond four years may seem good but you are only prolonging your debt with added interest.
For your car loan payments, it is advisable to pay using 10% of your gross monthly income as it is feasible to your established budget.
3. The 70-20-10 Rule
If you’re having a hard time saving your money, we suggest the 70-20-10 rule. Divide your monthly income and allot 70% for your living expenses such as food, daily transportation going to work, clothing and other needs.
Twenty percent goes to your savings and will be distributed as 10% for retirement, five percent for emergencies such as medical expenses, car repairs, and the likes. The remaining five percent go to leisure such as vacations, a new phone or a laptop.
For settling of debts and utilities such as credit cards, use 10% of your monthly earnings.
Note that if you go beyond the mentioned percentages in any category, we highly suggest lessening your spending in other areas. If the result showed you spend 75% on living expenses, lessen the amount you put in savings.
If you desire to have bigger savings, try cutting your expenses meant for your basic expenses by finding cheaper alternatives.
4. The 20/10 Rule
This method is helpful if you want to determine if you’re paying a lot on debts.
The 20/10 rule has two parts. The first can be applied to your yearly income. After adding all your debts such as credit card bill, personal and car loans, mortgages and the like in a year, it shouldn’t be more than 20% of your annual income minus some mandated taxes.
For example, if you’re earning P360,000 a year, your overall debt must not exceed P72,000.
For the second part, we will use your monthly income. If you earn P30,000, your debt must not go beyond P6,000.
Abiding by this rule would certainly keep you away from incurring more debts. It may seem challenging at first but in the long run, it will make you live within your means and you’ll have more savings that can be used for important financial goals.
Lastly, to keep track of your savings, efficient debt management and letting you enjoy some personal spending, we suggest the “Spending and Saving Rule: 50/20/30.”
If you are single:
- Avail of comprehensive health insurance. It guarantees assistance during any critical medical concern.
- Create a budget for all your transactions. A personal budget plan will train you to avoid overspending.
- Look for alternatives for your needs and always compare prices. Don’t be too brand conscious. They are made to provide you with the same benefits.
- Staying healthy is important as it let you save on medications and hospital bills. Sleep early, exercise regularly and eating healthy food helps a lot in your wellbeing.
- Surround yourself with friends and families who are financially responsible. Be inspired by what they’ve achieved.
If you’re married:
- Talk with your spouse regarding your financial game plan. Make sure they align and you both commit to achieving your goals.
- If you like to travel, avail promos being offered by airlines every month (given the situation is normal). If you have a friend or a relative residing in your chosen destination, contact them and ask referrals for affordable accommodation.
- Before going out for a date night, set the amount that you will spend. It doesn’t matter if you go to a fancy restaurant or a mall’s food court. Being happy together anywhere is more important.
- Start training your kids on the value of budgeting. Equip them with the ideas on how to save. Set up a mini business and include them from planning to execution. Our country needs a generation of business-minded citizens.
- Purchase a fuel-efficient car for your family. The excess money meant for gas can be used for lunch in the park, a day on the beach, and other bonding activities.