Like financial planning’s little black dress, budgeting is a piece of advice that stands the test of time. No matter where you are in life, sticking to a budget is fundamental to establishing financial health and strength. It’s featured on almost every pundit’s financial “must have” list, but few have really broken down how to track money without micromanaging every debit card read.
Enter the 50/30/20 rule.
The 50/30/20 rule is one of the easiest ways to set spending boundaries while planning for the future. That means spending 50% of your salary on needs, 30% on wants, and 20% on savings.
Following the rules requires considering how you spend your salary and what your priorities are. For example, is ordering takeout regularly a necessity or a luxury? Can you save extra money by skipping an expensive gym membership? What’s next? Do you dream of starting your own business? Are you in graduate school?
These future decisions will depend on your current spending and saving habits. Budgeting is where you can (and should!) voice your concerns and explore future goals. Here’s how to make the 50/30/20 rule work:
Set aside 50% of your monthly after-tax income for essentials.
Aim to spend no more than 50% of your monthly income (after taxes) on necessities such as rent, groceries, and internet. If you haven’t already done so, estimate each recurring expense you can expect each month. What’s the total?
If you’re spending 50% or more on these essentials, set goals to reduce costs. This takes time and can be difficult in cities with a high cost of living, but the 50% rule is an opportunity to negotiate spending. Perhaps you can start small and find ways to cut down on your grocery bill. You may need to consider this.
Play with 30% of your income.
The next part of the 50/30/20 rule states that no more than 30% of your spending should be spent on “fun” purchases. Think about it: new shoes, drinks with friends, a premium subscription to Spotify, the list goes on.
To plan how much to spend in a given month, group your “fun” funds into more manageable categories. This depends on your lifestyle, but most women make a monthly allowance for entertainment, dining out, fashion, beauty, and more. Spending.
Plan at least 20% of your budget up front.
Finally, you should use at least 20% of your income to pay off debt and increase your savings. If you have student loan payments or credit card debt, it’s best to pay them off as soon as possible. Once your monthly necessities have been accounted for and your monthly spending limits set, create a standing dollar amount to pay off your debts and loans. Bonus points if these payments are automatically deducted from your salary.
