Budgeting: It’s one of those words that everyone says they need to do, but few do. If you don’t already have a budget, you’ve come to the right place. A budget is a tool that helps you organize your finances, and it can help you get on track to saving more, spending less, and giving more. A budget can even help you reach your financial goals, like paying off debt, saving for a down payment, or saving for retirement.
We’ve all heard the phrase “budgeting is personal.” What this means, of course, is that not all budgets work for everyone. For example, a college student in Cambridge, Massachusetts, with a few roommates might be able to get by on $300 a month, especially if they utilize money-saving measures like Raise coupons or student discounts when buying essentials. However, a single father of four must budget $1200 or more, even with some money-saving tactics in play. What makes one budget work for one person might not work for the next. A student may want a budget that allocates money to entertainment and non-essential food. A parent might want to earmark some budget for new clothes, education opportunities, or life experiences for their children.
The Golden Rule of Budgeting
Budgeting is one of the best ways to save money and become more financially stable. For many people, it can be difficult to know where to start. Fortunately, there is a simple budget rule that can help nearly anyone. If you’ve ever tried to trim your budget, you’ve probably heard that 50% of your income should go toward necessities like housing, food, and transportation. 30% should go toward your financial goals, such as retirement savings, and 20% should be set aside for fun. But what does that mean?
Known as the 50/30/20 rule, it divides your monthly income into three zones: 50% for needs, 30% for wants, and 20% for savings. The 50/30/20 budget rule is such a simple budgeting tool because it makes it easier to see where you want to spend your money and what your priorities are. The 50/30/20 budget rule is also an easy way to organize your money using percentages. For example, if you make $2,000 a month, you should spend 50% or $1,000 on necessities, 30% or $600 on wants, and 20% or $400 on savings and debt reduction.
The Budget Rule: To Break or To Follow?
We’ve all heard the saying that goes: “spend less than you earn.” It is sound advice and one that many people struggle with. But if you’re looking to take your finances to the next level, you need to take that advice to the next level. That’s where the 50/30/20 budget rule comes in.
The 50/30/20 budget rule is a general guide, not a hard and fast rule. That means you can get started by following it, but once you get used to living on a budget, you may find you prefer a different breakdown. If that’s the case, you can change your budget to fit your spending habits.
Is The 50/30/20 Budget Rule for Me?
This is one of the oldest rules of thumb for budgeting. It says that you should spend 50% of your monthly income on needs, 30% on wants, and 20% on savings. Some people use the rule as a guide to help them cut down their spending. If you can’t afford something and you use this rule to decide you should skip it, for now, that’s completely fine. It’s a great guide to help you create new habits, but if you’re not sure you can live by this rule for the long run, you’re probably better off developing your budgeting plan.
One of the most important things in your life is managing money and making sure you have enough for your everyday needs. It can be difficult to figure out where to start, as there is so much information out there. But, if you take the time to learn a few simple rules, your life will get a lot easier.
Personal finance experts typically recommend that you create a budget that is 50 percent of your income (after taxes), 30 percent for housing and transportation, 20 percent for other expenses, and 10 percent for debt repayment and savings. This is a good general rule, but it may not work for everyone. If you are just starting a family or are planning on having children, you may need to increase that first number to cover groceries, child care, and other necessities.