If you want to create a budget, but have no idea where to start, we can help! The 50/30/20 rule is a pretty easy one to follow, and your bank accounts will soar if you follow these steps.
The first thing that needs to be identified when starting a budget is your after-tax income for the month. What is the figure? Write that down. Next, think about your expenses. The goal is to think about any possible expenses that can arise in any given month. Whether it’s a phone bill, car payment, rent, food, entertainment, daycare, student loans, spa visits, salon/barber, mortgage, driving range, hotel stay, gas, or something else, write it down. All of these expenses can add up quickly.
50% of the Budget
The first part of the rule is 50. The 50 signifies the 50% of your budget that will go to everyday needs. A need is whatever is required to live. For instance, groceries, rent, car payment and health insurance. Allocate 50% of your budget to pay for these essential needs.
30% of the Budget
30% of your monthly income will go towards wants and desires. What are these? These are the things that you spend money on that aren’t absolutely necessary for day-to-day life. For example, manicures/pedicures, eating out at restaurants, streaming services like Hulu and Netflix, excess clothing, the movie theatre, vacation, and more. What you want can be disguised as upgraded decisions, as well. For instance, buying the luxury vehicle instead of the economical one, or purchasing the latest smartphone instead of an older model. These luxuries can be viewed as upgraded essentials, but try not to do that too often.
20% of the Budget
Finally, 20% of your income will be put into savings and debt repayment. This chunk of income will be put towards a 401(k), IRA, emergency fund, college fund, car payment, etc. The other part of this will be put towards debt repayment. Do you have credit card debt, an auto loan, student loans, medical debt? This 20% of your income is a priority next to the initial 50%.
If you felt lost in the past when you’ve sat down to start a budget, the 50/20/30 budget rule is the remedy. Remember, 50% goes to necessities, 30% goes to wants and desires, and 20% goes to savings and debt repayment.
Do you have any tips to keep that budget in check? Share them with us!