Budgeting: The 50/30/20 Rule

Budgeting is the foundation of strong personal finances, providing a clear roadmap for managing income, expenses, and savings. It helps individuals take control of their money by ensuring they live within their means, prioritize financial goals, and prepare for unexpected expenses. A well-structured budget not only prevents overspending but also fosters healthy financial habits, such as saving for emergencies, paying down debt, and investing for the future. Without a budget, it’s easy to lose track of where money is going, leading to financial stress and missed opportunities for growth. By creating and sticking to a budget, individuals can achieve greater financial stability, reduce money-related anxiety, and work toward long-term financial success.

Rule of Thumb: 50/30/20

  • Ideally, 50% of your take home pay should go to bills, 30% to wants, and 20% to savings goals.
  • Your actual budget will likely deviate from this, especially for those who are just starting out in their career.

Pay Yourself First

  • The most important and fundamental principle of budgeting is to “pay yourself first.”
  • This means creating savings goals and setting money aside for them every paycheck before spending your money.
  • Consider setting up automatic transfers to your savings account timed to your paycheck.

Links

There are multiple methods to budgeting. What works for one person may not work for another. Experiment with different apps/methods and figure out what works for you. Avoid being unrealistic with savings goals, the best kind of budget is one that you can stick to.

  • For an initial exercise, use the budget worksheet on our website. Click Here
  • If you want a detailed budget that tracks every dollar spent, consider using the program YNAB (You Need a Budget). Click Here

  • If you want a less hands-on approach, consider RocketMoney. Click Here

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