Save More, Stress Less: The 80/20 Budget Explained
Can we all agree that money management can feel overwhelming? There are countless budgeting methods available, and everyone is recommending something different. In our constantly changing world, finding the best strategy for ourselves can be difficult.
If you feel lost and don’t know precisely what your finance managing strategy is called, this is the right place for you. Most of us struggle to save and end up living from paycheck to paycheck, never reaching the financial security we all dream about. Am I right? I am here to share all the information you need about the 80/20 and help you understand whether it’s the best strategy for you.
This simple rule is considered to be one of the easiest and also most effective ways to save money. The best part about it is that it doesn’t require any spreadsheets or extreme budgeting, working for any income level.
Can the 80/20 rule be the key to your financial freedom? Probably yes, because it will help you break free from debt, build wealth, and secure your future. How does it sound? Continue reading to find out more.
Why does budgeting matter?
In today’s world, budgeting is more important than ever. As you already know, we are dealing with a lot of financial stress and inflation keeps rising. Even without breaking the bank for extra monthly expenses, our incomes and budgets feel tighter.
Believe it or not, most Americans are one emergency away from financial ruin. All the high rent, medical bills, and unexpected expenses are leaving a mark on our finances, leaving us wondering if we will survive the constant changes.
Compared to the traditional method, which requires detailed expense tracking, there are more and more budgeting strategies that are becoming popular. One of them is called the 80/20 rule. If you decide to follow it, you will see that being mindful of your finances doesn’t have to be exhausting or even feel like a punishment. The rule offers a better alternative.
The method focuses on 2 important aspects: saving and spending. So, it makes budgeting easier to maintain. You don’t need to cut everything fun or stress over minor expenses as long as you save 20% of your monthly income. All you need to do is pay yourself first. By contributing to a secure future each month, you will see how easier dealing with financial stress will become. And the most important thing is that in case of an unexpected situation, you will be prepared.
How the 80/20 budget works
The budget follows an extremely simple formula: 20% of your income should go to savings, while the other 80% should cover everything else.
The 20% of your monthly income should be dedicated to your emergency funds and long-term financial goals. Even though it doesn’t seem like a significant amount, if you stay constant and organized, your hard work will pay off. In just a few months, you will see how your savings account will rise and your financial stress levels will significantly drop off.
Considering everything happening in the world right now, having a consistent account of savings is a must. The inflation can’t be kept under control and our daily expenses continue to rise. Even without emergencies or unexpected expenses, our financial situation is overwhelming. So, how could you afford a getaway, for example, as long as you are controlled by debts?
Without smart financial planning, Americans are forced to give up on their hobbies and dreams and focus on surviving from paycheck to paycheck. Isn’t that sad? We should all have the right to sometimes feel free and forget about our routines and daily tasks. We all need breaks, but unfortunately, not one of us can afford them.
Let’s change that! Let’s make the holiday of your dreams possible, and let’s stop being scared by what the future might bring. As long as your savings are increasing, you will feel better. Being in control will offer you peace and a different perspective on finances.
The advantage of the 80/20 budget rule
We are all tired of hearing the disadvantages of budgeting methods, so let’s focus on what are the good parts of 80/20. First of all, it offers us freedom. It’s not a restrictive method and it can be easily brought into any kind of income and lifestyle.
People often feel the need to complain because they are constantly feeling restricted and kept away from what makes them happy. Well, with this method you can still spend money on yourself, while also taking care of your future. Does it make sense?
Maybe you will not be able to buy whatever you want each month, especially if the item you wish to purchase is expanding the spending amount. But you will still be able to spend a significant part of your income on things that can’t be considered smart purchases. As long as you do something for yourself and don’t feel grounded, you will be more effective in your financial planning.
And let me share a secret. You will see that if the method works, you will feel extremely proud of yourself and will want to try to save even more. You will begin to analyze if something is worth or not your money. Basically, all this care about finances will transform you into a more responsible person.
The 80% part of your income can be categorized as ”guilt-free”, anything you purchase with this part of your monthly income, is not considered a waste. You should use the 80% for your rent, groceries, bills, travel, entertainment, and any other personal expenses. Basically, feel free to spend all the amount if you want to.
Anyone can benefit from the 80/20 budget
Another great thing about the 80/20 rule is that it can be considered ideal for anyone looking for an easy-to-follow plan. So, if you are one of the Americans who are tired of struggling with complex budgeting systems, you should definitely try this one. It will completely change your life and boost your confidence. Small steps are considerably more important the the bigger ones that require compromises.
Try it for at least 6 months, to see exactly what are its benefits. However, keep in mind that if you are someone looking to save more aggressively for retirement, it might not be the best financial plan for you. But you can still adapt it your needs and lifestyle.
Is this rule enough for financial freedom?
Let’s clarify a thing: financial freedom isn’t just about saving. You need to be constant with your healthy habits and basically transform them into a lifestyle. Plus, you will need to also make some smart investments that can make your money work for you. If you are interested in learning more tips and tricks about how to make the right investments, let me know in the comment section, and I promise to come back with a new article for you.
Knowing when it’s the right time to invest is extremely important and you need to do your research before risking your finances. However, before you consider investing, you should have a considerable amount of savings. Try the rule and keep it simple until the savings are enough to cover an emergency, then, feel free to also try new things.
The disadvantages of an 80/20 budget
Even though the rule offers a simple and effective way to save money, it doesn’t mean that it doesn’t have limitations. There is no perfect budget, and despite the budget’s advantages, may not work for everyone.
For example, for most Americans, 20% might not be enough, especially if we consider how many people are trying to aggressively save before they retire. And there are also the people who need to pay off their debts. For them, the 20% might also not be enough.
So, these vulnerable categories might consider the rule not effective enough for their needs. They might believe that it would slow down their progress toward financial independence.
Another issue might be that the 80% spending portion could lead to overspending in non-essential areas. For example, if you are not careful enough, a large part of the 80% could go through unnecessary subscriptions, dining out, or even luxuries. So, compared to those extremely detailed budgeting methods, this one doesn’t provide strict spending lines.
Now that we covered all the strengths and weaknesses, it’s your job to adapt the method to your lifestyle. If you want to apply it effectively, start without limiting yourself and save just 20% of your income. In time, if you understand that there might be expenses you could easily get rid of, you can also raise the saving percentage. Remember that all these budget rules are meant to help you, but it doesn’t mean that you can’t adjust them to your personal needs.
Before leaving, let me know what you think about the 80/20 rule. Have you tried it before? Or are you planning to try it? Feel free to share your thoughts in the comment section found below. The purpose of this website is to create a beautiful community and to help each other find the balance inside chaos. You are not alone. We’re all in this together, and managing finances is not easy for anyone!
Oh, and here is a journal that helped me stay organized and track my spending.
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