For those looking to manage their household budget effectively, experts from fortraders.org suggest trying a straightforward rule that is easy to remember and helps clarify how much to allocate to different expenses in order to grow your wealth.
20% Goes to Savings
Most people worldwide have no savings and live paycheck to paycheck. Others save by putting money aside for various things in a scattered way, and only what remains (if anything) goes into savings. Only a tiny percentage of financially savvy individuals follow the golden rule: “Pay yourself first, then everyone else!”
50% Covers Debts, Food, Housing, Utilities, and Transportation
It is strongly recommended not to spend more than 25% of your income on debts, including mortgage payments. If you spend more, it’s advisable to start cutting unnecessary expenses, avoid overpaying for optional services, simplify your daily meals, or find cheaper housing to reduce your debt faster to an optimal monthly payment of 25%. This helps prevent burnout.
The remaining 25% is for food, transportation, and utilities. These are basic human needs and take priority over lifestyle expenses. Transportation costs include car maintenance, fuel, taxes, and so on.
30% Goes to Lifestyle
This category includes clothing, dining out, phones, entertainment, sports, hobbies, and more. It’s important not to deny yourself enjoyable things. The only exception is when debts are large; some lifestyle expenses can be temporarily redirected toward faster debt repayment—but not completely or for too long. If it takes a long time, allow reasonable breaks from austerity to avoid burnout.
Where Does Rent Fit In?
If you have a mortgage, your monthly payment falls under the first category. If you rent, you can allocate rent expenses across categories after paying savings and debts. However, the amount spent on rent should not exceed 25% of your family income. Living extravagantly beyond your means won’t bring happiness.
20% Is for Savings
The remaining money should ideally go toward savings. You can keep cash at home, open a separate bank account, or invest in deposits to protect against inflation. Sometimes, it’s wise to split savings across different goals—vacations, medical expenses, emergencies, etc. The more responsibly you approach this, the easier it will be to start saving.
Expert Recommendations
We do not recommend reducing the savings percentage or increasing debt payments. Other categories can be adjusted slightly—for example, spending less on entertainment and more on rent. Life is cyclical—today you may have no debts, tomorrow you might; some expenses appear occasionally, like a child’s birth or friends’ weddings.
Of course, this is a simplified spending scheme. It’s best to plan expenses annually to account for infrequent but significant costs like gym memberships, health insurance, car insurance, and vehicle maintenance. Preparing for these in advance is essential.
