There are so many benefits to budgeting your money. Not only to understand your income and where your money is going but also to save money and be fully confident to make financial decisions. The first rule we tend to teach everyone is the 50/30/20 rule. It is easy to follow and to understand. Before you get started, you should lay out your income and financial goals. Understanding your money will give you the knowledge to adjust this rule to work for your lifestyle.
Why the 50/30/20 Rule
The 50/30/20 means you dissect your income and place your income towards 50% on needs, 30% on wants, and 20% on savings. Although the rule doesn’t always work for everyone, it is a simple way to divvy your monthly income after taxes. It is easy to follow for beginners. When investigating your revenue and spending, you should always overestimate your spending for your payment. You would rather underspend than overspend.
Where’s 50% Going Toward?
50% for necessities means you should take 50% of your income and place it towards necessary expenses. This could be utilities, rent, groceries, gas, debt payments, etc. When trying to identify your essential purchases, make sure you ask yourself if it is something you can’t function without. These are very different from your wants, but many tend to place some wants in this category.
Where’s 30% Going Toward?
30% of your budget should go towards your wants. Examples would be dining out, designer clothing, event tickets, subscriptions to any streaming service, and more. Spending money on yourself is a great way to reward your hard work. It can help motivate you to accomplish the things you are striving for. Your wants consist of items you may want but aren’t essential for your well-being.
Where’s 20% Going Toward?
20% of your income should go towards savings. This could be vacations, a new vehicle you may want, emergency savings, 401k, and many other things. You can utilize your savings to put towards your wants or needs eventually. It can be helpful for any long-term financial goals.
Everyone’s Finances Are Different
Although the 50/30/20 budgeting rule can be a fantastic method for some, it may not always work for everyone. Everyone’s finances are different. You may need to adjust your percentages. For example, if you are living in a more expensive area, you may put more than 50% of your income towards rent. We recommend applying this to your life to get started on a better financial journey. With this information, though, be gentle with yourself when using this in your life; you won’t always hit your percentages on the dot.