Savings - Budgeting Formula

In 'How to Save Money: Making Smart Financial Decisions', Terrance Odean share some simple insight on how to save money.

We will notice 1st that when it comes to saving, Budgeting cannot be ruled out. It is the deliberate way to achieving your savings goal. I shared a little bit on some simple steps to creating your personal budget in a previous post, so you can check it out to know just a little more.

So now I am sharing a formulae for budgeting.

We should know that the higher your sources of income are the easier it is to achieve your budget.

That said, this is a simple formula.

Terrance Odean shared the formula Senator Elizabeth Warren and her daughter wrote in their book “Worth” stating that there are basically three personal categories in budgeting — The Must Have, Savings and Wants.

1. Must Haves; These are recurrent expenses that show up like food, bills, transportation.
2. Savings; are the money you plan to save.
3. Wants; These are any other expenses that pops up or stuff you desire to buy.

He advice you then split your income into percentages.

Must Have - 50%

Savings - 20%

Wants - 30%

This is quite simple and easy to apply.

We know that so many unexpected circumstances can arise everyday like health challenges, broken car or some domestic hazards which we don’t pray for any but this can be used as a simple template to achieve your budget.

I would advice that when it come to saving, ensure you do it 1st. It should not be done after you have met all your expenses.

Pay yourself First.

There are many saving platforms and opportunities that I will introduce you to soon that could serve as an investment to you why you save.