If you’ve never given much thought to personal finance, there’s no time like the present to do so. A personal spending rulebook is a great way to get started on saving and proper spending. If you want to be a smarter spender, these tips will make personal finance easier to learn.
Use Tried-and-True Methods
Anyone who has looked into personal finance has likely encountered the 50-30-20 Rule. Its popularity stems from its simplicity, making it ideal for people of all incomes and financial know-how. The numbers correspond with what percentages of your income should go where. According to the rule, 50% of your income should go to living expenses and other necessities, including rent, utilities, and food. 30% of your income counts as “flexible spending,” money to be used however you please for entertainment and non-essential travel. The last 20% should go towards savings or loan payments. While the percentages are flexible, avoid exceeding 20% or 30% limits for financial goals and flexible spending, respectively.
It’s easy to see how much you spend each month, but that looking at the big picture doesn’t help on its own. Dive deep into your spending habits by categorizing the purchases you make. Basic categories include “necessities” such as rent, “loans,” “food,” and “entertainment.” Additionally, you can create subcategories to explore your habits more. “Food” can be split down further into “groceries” and “snacks,” depending on what and when you purchase. These categories explain what you’re purchasing and how much, and can be used to set individual limits on specific spending habits.
Set Hard Limits
As mentioned in the 50-30-20 rule, upper limits are important for any purchase type, from necessities like groceries to hobbies and other non-essential goods. Anyone who wants to improve their personal finances should consider setting hard limits on spending. This is a great way to break habits and save money quickly. Set limits on what you purchase, how much of it you purchase, or when you make purchases. For instance, consolidating your errands to one day each week means you save gas money and aren’t jerked around between stores too often. It also means you’ll see how much you spend weekly on groceries and other items in just one day.
Reward Your Efforts
It’s hard to change your habits without some sort of reward system. Once you start meeting your limits, reward yourself with a small but meaningful purchase. One way is to eat out at a nice restaurant after a month of limited snack spending. Or, you could purchase a book if you didn’t exceed your entertainment spending quota. Your rewards can be purchases because it’s not the occasional small splurge that causes overspending—it’s the big or repetitive ones that hurt you financially. These rewards act as incentives, making you more likely to put your rules to practice.