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Gladys Tan

Financial Consultant

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Budgeting Schools of Thought (& How To Find The One That Works For You!)

Updated: Mar 29, 2023

One of the most common feedback I've gotten when it comes to budgeting is that it's difficult to stick to it.

But perhaps, we just haven't found one that works for us.

Do you know that there are different methods of creating a budget?

One of the most common budgeting formulas is the 50/30/20 rule. This budgeting technique breaks your money down to cater to your needs, wants and savings. It's probably the most common budgeting rule you will come across.

I talk about this rule in detail in another blog post of mine. Read it here:

There are also other budgeting formulas that I've come across in my research and through speaking with my clients.

Here's a list of budgeting schools of thoughts (please note this list isn't exhaustive and I'm sure there are many more!):

  • 80/20: This one's even simpler than the 50/30/20. The idea here is to keep aside 20% and to spend 80% on whatever you want. Some people adjust this formula to accommodate their needs, e.g. 70/30 or 60/40. Whatever amount you choose to set aside, you are essentially 'paying yourself'. You may deploy these monies into savings, investments or towards your short term goals.

  • 70/20/10: This rule is specifically made to favour anyone with an ongoing debt. The 70% goes to monthly expenses, while 20% is for savings and investment, and 10% for debt or donations. You can read more about the 70/20/10 rule in detail via this article on The Penny Hoarder.

  • T Harv Eker's Money Jar System: Do you like to categorise your expenses? Then this method may work for you. According to this system, you can divide your money into 6 categories for specific purposes:

    • The first jar - Necessities (NEC) where 55% of your money goes to food, mortgage, bills, gas, insurance, etc. The rule of thumb here is this: if you need more than 55%, you should consider reducing spending.

    • The second jar - Financial Freedom Account (FFA) where you put 10% of your salary aside as soon as you receive it. Never spend from this. Let it grow.

    • The third jar - Long Term Savings for Spending (LTSS) where you keep aside money for future expenses such as children's education, property or car downpayment, etc

    • The fourth jar - Education (EDU) where you invest 10% of your money to grow yourself via a workshop or course.

    • The fifth jar - Play where you can set aside 10% for indulgence whether it be a fancy dinner or a weekend getaway! Use it up every month.

    • The sixth jar - Give where you use your money to help others. Now that you are better at managing your own finances, donate and help people in need or buy a gift for a loved one who is feeling down. Even as we plan for the future, we must not neglect to live in the present.

'An investment in knowledge pays the best interest.' - Benjamin Franklin

How to decide which budgeting school of thought works for you?

Again, those listed here are just a fraction of the many techniques available. Choosing the right one may involve you trying out a few to see which fits best with you and your lifestyle.

But regardless of which budgeting technique you're using, the universal rule is always to live below our means. It's one of the best personal finance strategies that can help us to brace through any uncertainties. If it helps, take some time to relook at the last 3 to 6 months of expenses and set realistic budgets for different aspects to ensure you don't overspend.

I hope this article has helped you gain more awareness of some budgeting techniques that are widely practiced. If you have any further questions on budgeting, feel free to reach out!

Disclaimer: The information in this post is purely for informational purposes and should not be relied upon as personalised financial advice. Please do your own research or speak to a financial advisor accordingly.

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