Budgeting

Needs are goods or services that are required for you to live and maintain a decent standard of living. Wants go beyond that; they are goods that you might have a desire for but without them, you'll still be fine. It's important to distinguish between these two when you're budgeting as you want to allocate money for your wants after you've paid for your needs.

Fixed Expenses are expenses that will not change month to month. Examples would include rent or a Netflix subscription. Variable Expenses are expenses that will change from month to month. These include grocery or restaurant bills. It's important to be able to differentiate between fixed and variable expenses. You always leave a certain amount for fixed expenses in a budget, whereas it is not possible to perfectly estimate variable expenses.

The 50/30/20 Rule is a popular rule for budgeting that involves:

• Allocating up to 50% of your income to your needs

• Allocating 30% of your income to your wants

• Allocating 20% of your income for saving and repaying any debt you owe

Note that the best budgeting model for you may look different than this. As a general rule, however, try and save even a little as it will start adding up over time if you put it in the right places (see the Investing section).