Do you find yourself having too much month at the end of the money? It’s all too common, believe me.

Perhaps you’ve just finished school, you’re starting to earn a decent income, maybe you’ve moved out of your parents’ house, or you’ve been at this for a while but your monthly finances are just not working.

So, what’s up with that? I know you probably feel like you are living within your means, but something is up. Today’s lesson is all about giving you some guidelines so you can tailor your money to your situation

You’ve probably heard the catchphrase: Live within your means.

What it means: Spend less than you earn. I know this seems like common sense, but it’s harder than it looks, so I’m going to take you through a simple guide to keeping you on track.

I’m borrowing a lesson from Learnvest, a financial planning firm in the US, to explain something called the 50/20/30 Rule.

It works like this:

50% of your after-tax income (your take home pay before any automatic retirement contributions) should go towards your essential spending. Think rent or mortgage payments, utilities, and property taxes, transportation, food, personal expenses.
At least 20% of your net income should go towards financial priorities like saving or paying down debt. And btw, saving for an iPhone or vacation later in the year doesn’t count! This minimum 20% savings/debt repayment will certainly help you with achieving your long-term goals, but in order to make certain it’s sound, you should make a financial plan.
The remaining 30% can be spent on lifestyle choices like clothing, entertainment, dining out, décor, etc. THIS is where the iPhone and vacation comes out of. 😉

I personally like this strategy because it’s flexible. I walk to work every day. Since I live in uptown (close to the centre of everything), rent is more expensive, but my commute is free! Within the 50% category, things are flexible. But If my commute was long with expensive paid parking and I had an expensive house, I might need to rethink my strategy.

Things are also flexible between categories (Now don’t get any ideas that you can move the 20% earmarked for financial priorities to lifestyle choices and not save anything…). Since I’m renting, my monthly payment is relatively low. I can put the money I’m not spending in the 50% essentials category into savings and use that for long-term goals.

While you don’t HAVE to spend up to 30% on lifestyle choices, I think it’s important this bucket is included in any budget. Everyone wants to enjoy themselves, and often that can involve spending money. With that being said, it’s important to ensure you’re not jeopardizing other goals by spending too much on lifestyle choices and not saving enough.

Some people looove mapping out every expense item in their budget and tracking their spending constantly. If that’s you, awesome! That is not me (I’ve tried, and failed) so I stick to this simple method. Whatever works best for you is the best option.