Part 2 of 3 on Proportional Budgeting(Part 1 was posted July 17):
We will look at how to sort the data from the tracking and understand how to pivot and find solutions to stay within your budget.
As you successfully gather the tracking, you now need to sort each of your expenses from the previous month into three categories: Needs, Wants, and Savings.
Needs are your essentials that can’t be skipped: your rent or mortgage, home and auto insurance, fuel, groceries, utility bills, etc.
Wants are your non-essential purchases: dining out, entertainment, and streaming services that are obvious. Some purchases can be in the grey between needs and wants: snacks and premium brands you desire(want) vs eggs and produce(need).
As you sort out your expenses into the three categories, you will realize that many of your needs might be wants. Getting protein like chicken breast and steaks could be defined as a need but if you chose to buy grain-fed or ribeye cuts, then the premium you pay should be in the wants category.
Savings isn’t just putting aside funds toward an emergency fund or for a down payment, it can also be paying off debt beyond the minimum payments. Retirement savings and student loan payments fall into this category as well as saving for a weekend getaway or saving for a car.
Now add up your spending totals in each category and figure out the percentage of your income they represent. In reality, your totals will not align naturally to 50% needs, 30% wants, and 20% savings, and that’s ok! The important thing is now we know where to make the adjustments.
Part 3 will share some tips to help you if you find yourself overspending in any category consistently with some final thoughts.