A reader asked how they should best allocate funds for their budget. Unfortunately, there’s no universally accepted budget allocation method or formula. Different finance experts have varying suggestions on how one should best distribute their money in their budget.

This is understandable and expected since no budget fits all families. Urban dwellers, for instance, tend to spend more on housing as compared to rural dwellers, while rural dwellers might find themselves spending more on transport and less housing. Still, there are some guidelines that you should follow to help structure your budget.

This article will briefly look at the different budget allocation suggests and in the course of this week we will dig deeper into each budget allocation suggestion.

The Balanced Money Formula

This budgeting formula is by Elizabeth Warren and Amelia Tyagi. The formula suggests that no more than 50 percent of your net income (income after taxes) should be spent on needs, 20 percent should be spent on savings while 30 percent should be spent on wants.

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The needs section will cover those expenses you must pay for no matter what, wants will cover those expenses you can do without while the savings section will money you should put aside for a rainy day.

A detailed breakdown of this budgeting system will be posted on Wednesday, 26 September.

The 60 Percent Solution

This is the more stringed budgeting formula which suggests that 60 percent of your net income should cover housing, food, clothes and all bills, including non-essentials such as pay TV and eating out. 40 percent should go into debt payments and saving for future purchases, vacations and education.

Learn more about this on Thursday, 27 September.

The Perfect Financial Plan

Based on the fact that a budget has different categories, this system suggests what percentage of your net income should be allocated to each budget category.

According to this system:

• 10% of your net income should go into savings
• 10% of your net income should be invested
• 30% of your net should cater for your mortgage payment of monthly rent
• 20% of your net should cater for your food and transport expenses, while
• The remaining 20% should cater for your discretionary expenditures.

Watch out for a detailed breakdown of this one Friday, 28 September.