How to budget using the 50/20/30 rule

When you’re just starting out as a professional and are making real money for the first time, you can quickly find yourself doing a lot more spending than saving. Over time, you hopefully get a handle on the spending and wrangle in your finances. If you’re having trouble spending less and saving more, then it’s probably time to start budgeting better. If you’re not good with a budget and have trouble keeping to one, the 50/20/30 rule is an easy way to dip your toes in the water.

The Necessities (50% of your income)

Keep the needs in your life to 50 percent or less of your income. This number may seem high, but after all, needs are needs. The necessities in your life are all of those things that you would have to pay for no matter your situation. Housing, groceries, transportation, and utilities are included in this part of your budget.

The Savings (20%)

When looking at the savings portion of your budget, you will include not only retirement savings, like your 401(k) or IRA, but also payments on debts, like your student loans or car payment, as well as your emergency fund. If you find yourself wondering, “What emergency fund?” then it may be time to start one. You’ll definitely be glad you put those funds aside when your car surprisingly breaks down.

The Wants (30%)

You can probably figure out this category for yourself. This category covers anything that isn’t necessity or savings. Netflix, Crossfit, and your morning coffee all fit into this category. See some new shoes you like? Budget those into this category as well.

Make sure when you’re mapping out your 50/20/30 plan that you don’t go over budget on your needs and your wants. Stay strict on these sections and you’ll give yourself room to save more money and reduce debt quicker.