In this article I will share with you one of my simplest (but most effective) secrets.
This financial principle is not only working, but will also work ALWAYS. With a little regulation it will help you throughout your life to know exactly how much to spend, save and invest … regardless of your income, debt, place of residence or stage of life.
When my husband and I finally saved enough and had stable enough income to move into our new home we were in the seventh heavenly… until my husband had limited working hours for the next few months by as much as 40%… the news is that this rule helped us to stay on the right track. No derailment, no panic, no life with credit cards. We knew exactly what to do. Although we had to work hard, we managed, it was nothing compared to our struggle with debts a few years back.
REDUCTION 70%
From the beginning:
You take a monthly income from your home and divide it into 70%, 20% and 10%. Percentage shares of the percentages:
70% is monthly expenditure (you spend money on)
20% goes to savings unless you have an urgent debt (definition below), in which case it first goes towards debt.
10% goes to investments, pensions, study savings, etc.
Roll with butter ?
How does it work?
The beauty of percentages compared to numbers means that percentages change easily; your budgets will increase or decrease with you! You will never be lost or confused. If you earn £1000, £10,000 or £1,000,000 … you can always easily find 70% (using a calculator if mental mathematics frightens you).
Another beauty of this method is that everything is covered! MACHINE money earmarked for saving / indebtedness … for expenses … for investment, retirement … you are secure! So you don’t have to feel guilty when you go on holiday, or worry about how you’ll ever pay your credit card.
Here is the exact breakdown of all parts of this financial rule:
Income
When I say ‘income’, this does not mean income listed on tax statements. When I say “monthly income from home,” I mean literally ££1.00 per month, the amount of real money that actually goes to your bank account. Yes, i.e. after taxes, insurance, withholding taxes, etc. Henceforth, if it is not deposited in a checking account, it is not considered as ‘monthly household income’. Kapisz?
Tips on how to do this:
Find the monthly average. If you receive a monthly or bimonthly payment, the amount you get into your account (average of at least 3 months), and enter a monthly number: not every week.
Irregular withdrawals. If you have a commission or service-based income, you need to find an average, so you don’t have to recalculate budgets every month you live.
70% for expenditure:
Expenses include ALL what you spend money on, including (but not limited to) bills, tools, emergency or unexpected expenses, shopping, food, name it. If you spend money on it, it is considered an expense. That is how to do it:
Let’s agree that the monthly income from your home is £3,000 per month, so to make it easier. Remember that this is the total amount that is actually deposited into your bank account every month!
Find 70% of this income
70% of 3,000 £ is 2,100 £ (3,000 x 0.7 = 2,100 £).
So everything you spend money on in a month must be £2,100 or less (in this case). This includes mortgages + bills + entertainment + insurance + tools + take-away food + groceries … everything.
Tips for this to work:
70% or less is the key to success. If you DO NOT live with 70%, don’t do it! The less you spend, the more you can save and invest = a better life for your family. 70% is the maximum.
First, you need to find out how much you spend. Count all your money for the last 3 months (you have read it well) and put it in a spreadsheet. EVERY THROUGH … even if it’s GBP 50. Every penny will not work differently!
Categorize expenses in a spreadsheet to know at a glance what you are spending money on (food…eating out … clothing … decor … bills … tuition fees … etc.).
Find the total of all expenses (for all 3 months) and divide by 3 to find the average.
Do you have any credit card or bank statement statements because you pay for everything in cash? This means you don’t have an accurate record of all your expenses, so start tracking every single DNIA you spend over the next 3 months. You really should do it electronically. Don’t you like credit cards? Use a debit card, it’s basically cash. Simply make sure you keep track of everything and know what you’re spending on! I really recommend using a debit card. Once you’ve got it right, you can get back to business as usual.