Budgeting

Budgeting: a good concept for all, helpful for most, but used by surprisingly few. Although there are a lot of different ways to decide how you want to manage your finances, today we’ll be covering one of the more popular styles, also known as the 50/30/20 rule.

First coined by Senator Elizabeth Warren, the 50/30/20 rule is a guideline based on three categories: needs, wants, and goals. While it helps you break down your budget into simple steps, you’ll still need to calculate the actual numbers of it yourself. (Remember to calculate this with your after-tax income.)

Needs are what you are essential for your life, or at least help make your life easier; this includes rent, groceries, and utilities. 50% of your income should be going here.

Wants are just as they sound: it would be nice to have but aren’t necessary to survive. These would usually include money spent on hobbies, vacations, dining out, or even your subscription services like Netflix. We’ll be putting 30% of our income to this category.

Finally, you have your goals: savings, retirement income, and getting rid of debt. Your remaining 20% of your income helps to cover this part of your life.

Plan your budget around these numbers, and make sure to keep track of them through each month. It will help you have a tangible amount to work with, as well as point out any areas that may require adjustment.

Of course, like any rule there may be some potential for gray areas or exceptions. Maybe your debt is something that you consider a “need” or “want”, and not just a goal. You might find that with your current income, the bills you need to pay bring you closer to 60% of your budget. Again, use this rule as more of a general guideline, and see how it can work for you. You might find yourself buying fewer snacks the next time you’re shopping, and that doubles as a health boost too!