Needs versus Wants versus Saving

Budgeting is a daunting task for some and other love it. One major roadblock for getting people to start using a budget is that they think they will be restricted and unhappy. This most certainly does not have to be the case!

I came across a good rule to use when deciding how you should use your money. It strikes a good balance and can cover all the bases for most people. This of course is not set in stone and is a general guideline that can be adjusted.

The formula says everyone's budget should be close to this:

50% for needs, 30% for wants, 20% for saving

The difficult part is to sit down and differentiate a need from a want. Some are obvious. You need food, shelter, and transportation. Wants are going out to dinner, concerts, gym memberships, vacations, etc. Saving can be either retirement/investments or debt repayment if you still have debt other than a mortgage.

The idea here is to make sure you budget for everything that comes up. Allocating 30% to your wants will make sure you include things that you enjoy and make you happy. 20% is a good rule for saving and can always be higher. The more you save now the less you need later. I like 50% as needs as it makes you really evaluate what truly is a need and leave room for the fun stuff.

Most of our budgets don't fit this formula. That is OK as long as you are happy with it. This general guideline gives us a target to aim for during the budgeting process. Most of the time people discover they are well over the wants category and little to nothing for savings. This is a great indicator that it may be time for some adjustments!

I hope you all have a great holiday. Enjoy the season!