You clip coupons, you don’t splurge and you cook rather than go out to eat. You’re the budget queen, one of the best to ever do it. But if you admit it, sometimes you fall short. You underestimate your bills or other miscellaneous expenses. It’s ok boo. Don’t beat yourself up about it. It happens to the best of us.
But it doesn’t have to happen anymore. Black Enterprise’s Money Coach suggests that once you figure out your monthly expenses, you should add twenty percent to that.
In tough economic times, many people want to start budgeting—or better stick to a budget—but they find it hard to do so.
Here’s an easy way to stay on track and maintain a realistic budget: use something I call “The 20% rule.”
In a nutshell, the 20% rule says that whatever the bottom-line number you come up with in terms of your monthly expenses is, add 20% to it in order to get your “true” monthly bills.
So if you add up all your financial obligations – like rent/mortgage, food, utilities, and so on—and then you tell me that your bills are $2,500 a month, I’m automatically thinking they’re really 20% more, or $3,000 monthly.
The reason for this strategy is that many people underestimate their bills.
For example, when most individuals show me their budgets they’ve routinely omitted numerous categories, such as memberships, subscriptions, donations, money spent on gifts, year-round holiday spending, one-time expenses like car registration fees and more.
I’ve never had a single person show me a budget that was 100% complete and that did not leave out a certain category of spending or various expenses that the person accidentally forgot about.
Even if you consider yourself a master budgeter and you’re a whiz at tracking every single expense, another reason the 20% rule is helpful is because the extra 20% allows you to build a cushion in your budget.
Read More On: Madame Noire
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