It’s always good to explore different approaches to personal finances like the 80/20 budget, especially with Delaware Title Loans, Inc. ready to help if you need a cash boost. The 80/20 approach is a simple way to portion your money while prioritizing savings, but it comes with its fair share of pros and cons.

This quick guide will help you understand how the 80/20 budget works, the benefits and drawbacks it offers, and how you can decide whether or not it's right for you.

What Is The 80/20 Budget, And How Does It Work?

There are plenty of budgeting methods out there in the world of personal finance, and each comes with its fair share of benefits and drawbacks. One popular method that has stood the test of time is the 80/20 budget.

One of the reasons behind this method’s popularity is its simplicity. As you might have guessed from the name, it calls for you to divide your income into two portions, 80% and 20%, respectively.

The smaller 20% portion of your money goes directly into your savings, while the larger potion is used for everything else.

For example, the 80% will include your food, entertainment, transportation, and everything else you require for your daily necessities.

Suppose you’re new to budgeting and personal finance, or perhaps you’re looking to simplify how you manage your money. In that case, this 80/20 arrangement might be the one for you!

What Are The Pros And Cons Of The 80/20 Budget?

First, remember that there is no perfect budgeting method in personal finance. Instead, there are many different approaches that you can choose from depending on your style and preferences.

Here are the benefits and drawbacks of the 80/20 budget that you must understand to determine whether or not it’s something you should try:

Pro: Simple

For starters, the 80/20 arrangement is incredibly straightforward. That means you can spend your time and energy on other things instead of the minute details of your budget like some people choose to do.

Sometimes if you want to get good at something, keeping things simple is the best way to gain experience.

Pro: Prioritizes Savings

Another benefit of the 80/20 budget is that it prioritizes savings. As you saw earlier, there are only two categories in this budget: savings and everything else.

In other words, you’ll already commit 20% of your income to savings before anything else. 

That helps you ensure that the money doesn’t ‘leak’ or get used up for other spontaneous expenses along the way.

Pro: Less Stress

When you combine simplicity and an ever-growing savings fund, what you get is a lot less financial stress. That can lead to plenty of peace of mind that can benefit other areas of your life.

Con: Lacks Flexibility

On the downside, critics argue that the 80/20 budget is too rigid and lacks flexibility. For example, some people might experience a temporary drop in income and other surprises like financial emergencies.

When those conditions occur, sticking to the 20% savings rate might not be as easy as it sounds.

Con: Not Detailed Enough

On top of that, you might also find that the 80/20 budget isn’t detailed enough. As a result, you might overlook smaller issues in your budget that require closer attention.

If you feel this is the case, you might want to look into other budgeting methods like the 50/30/20 rule instead, as they take more things into consideration.

Con: Oversimplifies Things

While it’s good to keep things simple in personal finance, there’s also the danger of oversimplifying things with the 80/20 budget. 

Too much simplicity can discourage you from diving deeper into developing important personal finance knowledge and skills that can benefit you in the long run.

How Do You Know If The 80/20 Budget Is Right For You?

Everyone you talk to will have their personal opinions. However, the best way to decide if the 80/20 budget is right for you is to try it on yourself.

Give yourself a period of 1-3 months with this new budget and then decide if you should continue with it long-term.

Don’t worry if you make mistakes or leave gaps in your budget, though. When that happens, you can always get a quick financial boost through a title or installment loan to fill the gaps and help you keep moving forward.

In a nutshell, a title loan is a secured loan option that allows you to borrow money against the value of your car. But if you prefer an unsecured loan, you can opt for an installment loan instead.

Get A Financial Boost Now!

Adopting the 80/20 budget could be an excellent decision for your personal finances. But if you ever find yourself needing a quick financial boost, you can always turn to Delaware Title Loans, Inc. for a short-term title or installment loan.

Just fill out and submit the online form with your details so a helpful representative can get in touch soon after. They’ll discuss your financial needs and help you complete your loan request for quick and easy money!

Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.