50/30/20 Budgeting: How to Stay on Track with Your Finances
Budgeting 101 is a difficult topic, but budgeting is a necessary skill for anyone looking to gain financial freedom. Budgeting is a way to keep a spending list of what you plan to spend your money on to create a plan for how you can best spend your money each month. But so many people struggle to stay on track because they don’t know how to break their finances into three different buckets: 50% for essential expenses, 30 % for discretionary purchases, and 20% for savings.
50-30-20 budgeting is used by all sorts of people from students and parents, to entrepreneurs and retirees — it’s not just for one particular type or class of individual. If you want extra money at the end of each month so that you can save up funds for retirement, emergency expenses, or pay down debt quicker, 50/30/20 budgeting might be worth trying out.
If you can master 50/30/20 budgeting, then there’s no telling how far your finances will go.
By following the 50/30/20 rule of thumb for budgeting principles, you’re setting yourself up to be able to have some money left over each month after covering all of your expenses. This is an excellent financial goal to strive for. 50/30/20 budgeting is a great way to help you gain control of your finances, teach yourself how to save money, and get on the road toward living life more frugally.
When it comes down to it, 50-30-20 budgeting isn’t about creating an exact plan for how you’re going to spend every penny. 50/30/20 budgeting is about making sure that your expenses and discretionary purchases fall into one of those three categories: essential, savings, or non-essential.
50% for Essential Expenses
With 50/30/20 budgeting, 50 percent of your income should go toward essential expenses: 50 percent is the amount of money you need to set aside for things like rent and groceries. These are your necessities, so they don’t fall into either of the other two categories — which we’ll go over in a minute.
30% for Discretionary Purchases
The next 20 percent should go toward discretionary purchases. 50-30-20 budgeting means that you can spend 20 percent of your income on things like clothes, entertainment, and vacations.
20% for Savings
The last 30 percent is what 50/30/20 budgeting calls “savings” — this category includes funding retirement accounts (401k or IRA), setting aside money for emergencies, and things like Christmas or car repairs. 50-30-20 budgeting is a great way to make sure you’re taking care of all your financial goals, while still keeping enough in the bank at the end of each month to save some cash. The 50/30/20 rule simply suggests that 50 percent goes toward essentials, 30 percent towards discretionary purchases, and 20% into savings — but there are no strict rules when it comes down to how much you should be spending on each category.
Just follow these three simple steps:
- Decide what percentage will go towards essential expenses.
- Decide what percentage will go towards discretionary items.
- Put away 20% from your income for savings.
50-30-20 budgeting is a great way to keep your spending in check without sacrificing too much. This rule provides a simple, easy-to-understand method for dealing with money. It teaches you how to have a budget system that will keep your money going towards different expenses, and teach you methods of getting rid of bad habits.
We believe that 50/30/20 budgeting is an excellent financial goal to strive for. It can provide you with the tools and knowledge you need to get on the road toward living life more frugally while teaching yourself how to save money.
The best part of following this rule of thumb is that it doesn’t matter what your income level or expenses are.
If you’re thinking about trying out this new way of managing your finances, comment below!
