After that, you set goals for how much you want to spend in each category, such as groceries, gas, and entertainment. This can be a great budgeting technique for people who are detail-oriented and who have more time. It’s not so great for people who are “big-picture” thinkers, creative types, and busy people. 50 percent of your take-home pay should go towards needs, 30 percent should be devoted to wants, and 20 percent should get put into savings. Dividing needs from wants can be tricky. “Needs” include your only vital necessities. You might think that groceries are a need, but there are items that are “wants.” For example, the fruits and vegetables you buy at the store are a need, while the Oreo cookies you buy at the store are a “want.” Lumping them together under the broad umbrella of “groceries” causes you to co-mingle “needs” and “wants.” Twenty percent is the minimum you should save. You should put at least 10-15 percent away for retirement. You can use the rest for emergencies, buying your next car in cash, home repairs, and other long-term savings goals. You can also modify this into the 70/30 budget, 60/40 budget, or even the 50/50 budget, depending on how aggressively you choose to save. The beauty of this budget is that once your savings are cared for, you don’t need to worry about where the rest of your money is going. This is also known as the Pay Yourself First budgeting method. You open multiple savings accounts and give each one a nickname based on specific goals, like “Paris vacation” and “future car repairs.” Then you set a goal ($2,000 for the Paris trip by next January; $800 for future car repairs by this March) and divide the dollars by the timeline to see how much you should save each month. Now you can auto-draft money each month from your checking account into your multiple savings accounts. Once you’re done, freely spend the rest. Programs like Personal Capital, You Need a Budget, and Mint can help you track your spending within a variety of categories. You won’t have to maintain a paper-and-pencil ledger.
