SACRAMENTO, Calif. — If making a holiday shopping budget stresses you out, you just need to know the 20-60-20 rule.
“20% of your income, your take home pay, should be devoted to discretionary expenses,” said financial specialist Shayne Corriea-Fernandez. “And then 60% of your income goes to what we call ‘essential expenses,’ so your mortgage or those bills you have to pay every month. The other 20% should be investing or spending on yourself.”
Take a close look at a month or two of your bank statements. Categorize your expenses — which bucket does each item belong to and how much money do you have left over after you pay for necessities and savings?
“A lot of people think they know their numbers in their head, but once you go through that bank statement, you go, ‘Oh wow,’” said Corriea-Fernandez.
Once you know how much you can spend without going into debt or busting your budget, you can help track that spending on your phone.
Corriea-Fernandez recommends apps like “Christmas List” to help you stay on track. You can make gift lists, get gift ideas and share the list with friends and family. No personal information or bank information is required.
While holiday shopping apps can help you track your spending, taking a deep dive into your finances first will help you know how much money you can spend.
“If we don’t know and we don’t have it written down, we’re just guessing, right? And that’s where we get into trouble,” said Corriea-Fernandez.
If you make your budget using the 20-60-20 rule, you could do your holiday shopping debt-free. Sometimes, despite our best efforts, many people dip into their credit cards.
Corriea-Fernandez suggests using cards offering zero-percent interest for six months or a year, and only spend what you’re able to pay off within the next couple of months.
If you don’t pay it off and you overextend your limit, that’s where it turns into bad debt and could hurt your credit score.
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