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The #1 Rule of Budgeting
When it comes to budgeting, there is one rule that trumps all others: always live below your means. This may seem simple, but it is the foundation of all effective budgeting. The #1 Rule of Budgeting is not about cutting out luxuries or living an austere life, it’s about understanding your income and expenses and making sure that your spending does not exceed your earnings.
In order to apply the #1 Rule of Budgeting to your budget spreadsheet, you must first determine your income. This includes all sources of income, such as salary, rental income, and investment income. Next, you must list all of your expenses, including fixed expenses like rent or mortgage payments, and variable expenses like groceries and entertainment. Once you have a clear picture of your income and expenses, you can then begin to make adjustments to live within your means.
One way to achieve this is by creating a budget that allocates a certain percentage of your income to different expenses. The 50/30/20 rule, for example, suggests that 50% of your income should go towards necessities, 30% towards wants, and 20% towards savings and debt repayment. This can be easily incorporated into a budget spreadsheet by creating different categories for necessities, wants, and savings and then inputting the corresponding percentages.
