For Money Savings Monday, we are talking about budgeting. Keeping an eye on your budget is very important for the sake of your future! If you lose sight of it you could end up spending too much for what you have, or end up worrying yourself about if you can afford various expenses! The 50/30/20 rule is a great way to help you understand your spending and adjusting it accordingly.
Look at your net income, the amount you make after taxes. Be sure to include amounts that will go to health insurance or retirement, as those will be part of your budget as well. If you divide it up according the 50/30/20 rule:
- 50% goes to your needs.
- 30% goes to your wants.
- 20% goes to your savings.
That starting 50%, your needs, would include all matter of things that need to be paid for, non-optional. This would include things such as:
- Housing and utilities.
- Insurance as well as health care.
- Loan payments and minimum required credit card payments.
- And any other expenses that would need to be met for you to be able to work.
Some things may give you trouble to figure out if you’d classify it as a need or want. Getting food delivered would trend more towards being a want, and if you allow yourself to splurge on expensive groceries those prices can add up quickly. Even if they are needs it’s important to be reasonably frugal.
The next 30%, your wants, would of course include anything past the needs that mean they are optional for your life. Therefore you will have to limit your spending on this category to 30% of your net income. For example this could include:
- Subscriptions (streaming, delivery, and others).
- Entertainment otherwise (buying movies, games, or other novelties).
- Taking vacations or traveling.
- Eating at restaurants.
And that final 20% goes into your savings. You can make an emergency fund, put it in a retirement account such as a 401(k), save to buy a home, or also pay off debts such as on credit cards past that minimum required payment.
It really can be overwhelming to try to budget your money accordingly, and that’s why this 50/30/20 rule can be a lifesaver. It helps you simplify your thinking and reminds you to save money. At the very least, start by jotting down your income and expenses to help you think about where your money is going and work from there.
This is one of the suggestions we give to our clients after they have gotten a fresh start after bankruptcy to keep them on the road to success.