Flexible Budgeting Rule Gains Traction as Debt Concerns rise
NEW YORK – as Americans grapple with persistent inflation and rising credit card debt, financial experts are increasingly recommending a simple budgeting technique: the 20% rule. This approach, allowing 20% of monthly after-tax income to be allocated towards financial goals like debt repayment and savings, offers a flexible framework for managing finances and avoiding excessive debt accumulation.
The 20% rule isn’t a rigid prescription,but rather a guideline adaptable to individual circumstances. “If the consumer finds their bills equal to more than 50% of their monthly, after-tax income, this budget can be easily adjusted to a 60/20/20 budget,” explains financial expert Tayne. Conversely, a 40/30/30 budget – 40% needs, 30% wants, 30% debt/savings – can be implemented if bills are less than 50% of income. This adaptability makes it notably appealing in the current economic climate where household expenses vary widely.
The core principle involves dividing after-tax income into three categories: needs (approximately 50%), wants (around 30%), and debt/savings (the crucial 20%). This structure provides several benefits, according to experts.
Firstly, it fosters better budgeting awareness. Before applying the rule, individuals must assess their income and expenses, tracking where their money goes to maintain financial clarity. Secondly,the categorized approach makes it easier to cut back on spending when necessary,identifying areas where adjustments can be made.the 20% allocation promotes a more goal-focused mindset, making progress towards objectives like debt reduction, emergency funds, or retirement savings feel achievable.
“Following the rule can help someone budget more carefully and avoid accumulating excessive debt,” adds pack. While not a guaranteed solution, the 20% rule provides a valuable tool for regaining control of personal finances and building a more secure financial future.
this article originally appeared on GOBankingRates.com: https://www.gobankingrates.com/saving-money/budgeting/why-money-experts-stand-by-this-one-trick-to-keep-credit-card-debt-under-control/
