09 Mar Easy Budget for Your Money
Easy Budget for Your Money
50 20 30 Rule
So you’ve made the decision to make a budget but are overwhelmed with where to start or how to do it? We know the feeling. Setting a budget can seem like an overwhelming task but it doesn’t have to be. No matter who you are or what your background is this 50/20/30 guideline can help you not only figure out how much you may want to allocate to each area every month; it can also help you determine the order in which your money can be allocated. The 50/20/30 guideline can be easy to follow because instead of telling you how to break down your budget across 20 or more different categories (who could possibly keep track of that?), it splits everything into three main categories:
1. Essential Expenses (50%) No more than 50 percent of your take-home pay should go toward Essential Expenses. These essential expenses consist of shelter, food, heat, etc. Only four expenses should go in this category: housing, transportation, utilities and groceries.
2. Financial Priorities (20%) At least 20 percent of your take-home pay should go to Financial Priorities which are the goals essential for a strong financial foundation. These include retirement contributions, savings contributions and debt payments. You should make these contributions and payments after you pay your Essential Expenses.
3. Lifestyle Choices (30%) No more than 30 percent of your take home pay should go to Lifestyle Choices, which are personal, voluntary and often fun ways to spend your money. These include cable, internet, gym fees, pets, bars, or shopping.
Here is an example of how this might work for you:
Your income: $36,000 a year Your take-home pay after taxes: $2,250 a month (we’re assuming 25% of her salary goes toward a combination of taxes, benefits and retirement savings)
Fixed Costs: Rent: $775 Transportation: $115 Utilities (including phone and internet): $135 Gym and subscriptions: $75 Total: $1,100, which is about 49% of your take-home pay
Financial Goals: Debt payments: $150 Roth IRA contributions: $200 Emergency fund: $75 Vacation fund: $50 Total: $475, which is about 21% of your take-home pay
Flexible Spending: $675, which is 30% of your take-home pay
Even with a tight budget, anyone can take steps to improve their financial health and stability.