What does 'rule of thumb' budgeting refer to?

'Rule of thumb' budgeting refers to a method based on standard percentages of income. This approach is often used because it provides a simple and quick way to allocate funds across different categories of expenses without needing extensive financial analysis or detailed calculations. For example, someone might follow the guideline of spending 50% of their income on necessities, 30% on discretionary spending, and saving 20%. This method is particularly appealing for its ease of use and the way it allows individuals to manage their finances effectively with general principles, rather than requiring specific calculations or financial expertise.

In contrast, precise methods for calculating expenses or complex algorithms for forecasting involve more rigorous analysis and are not aligned with the straightforward nature of 'rule of thumb' budgeting. A detailed analysis of financial markets is entirely focused on investment and economic trends, which is also outside the scope of this simple budgeting approach. Therefore, the choice that best captures the essence of 'rule of thumb' budgeting is based on the utilization of standard percentages of income for planning financial expenditures.