Getting Began with the 50/30/20 Finances

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Whether you’re saving for a particular goal or just want to make the most of your income, it’s always best to have a budget. One of the most popular is the 50/30/20 budget. That means that 50 percent of your income goes toward needs, 30 percent towards wants, and 20 percent to debt and savings. It’s simple and allows you to manage your debt and build your savings. Getting started isn’t hard, either.

Saving for Needs: 50 Percent

Up to half of your income goes toward the non-negotiables, like housing, groceries, utilities, and transportation. Remember, this category is the bare minimum, so it includes basics, such as meals, but not things like going out to eat.

Minimum loan repayments also go in this category. If the category adds up to more than 50 percent, you might need to reduce your wants. That means adjusting your spending. It could include canceling subscriptions or looking for free ways to entertain yourself.

There are ways to reduce your contributions toward the need’s category. For instance, if you have debt from school, you could refinance your existing student loans with a private lender to save on your monthly expenses.

That often results in a lower payment each month, so you can put more money in other categories. And if you have a good credit score, you can often qualify for a lower interest rate, which reduces what you’ll spend over the life of the loan.

Wants: 30 percent

It can be hard to separate your needs from your wants. However, generally, the wants are ones that aren’t essential for working or living. Wants might include gifts, entertainment, or eating out. Remember, too, that wants vs. needs might differ depending on the person. For example, certain types of food might be more expensive, but if you’re on a special diet, you might have to purchase those more expensive items.

If you have a lot of debt, you might find that you can put off some of the wants until you have brought your debt under control. But if you want to create a budget that you can stick to, it’s critical to leave room for something fun. Plus, leaving a bit of extra room allows you to set aside funds for expenses you might have forgotten about.

Don’t allow your budget to prevent you from having a good time in life. It should make you freer, not constrain you. By leaving some room for fun, you’ll feel more like the budget helps you live a better life. Remember, a good budget is the one that you’ll stick to.

Savings and Extra Debt Repayments: 20 percent

The last 20 percent should go towards savings and extra repayments toward debt. That can include creating an emergency fund, contributing toward retirement, or saving for a home. It could also include making higher payments on a mortgage or student loans so you can pay them off sooner. You may decide to split this category so you can accomplish the most critical goal.

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