Are you still living life without a budget? More than a way to stay on track with paying your bills on time, a budget is an important tool for determining how much you should be spending, and on what. They’re a great tool to help you diversify your financial profile, reach dynamic savings goals, and foster overall financial health.
The 50/20/30 rule, also called the 50/30/20 budget, is one budget type that can help you keep your spending in alignment with your savings goals. We’ll be covering it below.
If you’re in a tough position with your money, then it’s time to talk to a professional when debating bankruptcy to really get a sense of your options. In some cases, lifestyle adjustments and budgeting tools can be enough to get someone back on track with their finances.
Identify Your Spending Habits
Especially if you are struggling to stay on top of your finances, then the time that you are using to make a budget can be an important time to reflect on your spending habits and behaviour. Take a long, hard look in the mirror (or maybe your wallet, rather). We’re talking about analyzing your spending habits. Do you overspend on clothes? Shoes? Food? Drinks? Figuring out your spending vice from the very beginning will help you learn how to make a budget that effectively cuts spending where you need it most.
Take a look at your bank and credit card statements over the last few months and see if you can find any common trends. Are you overspending on food and drinks? Then you must come up with a plan for how you can avoid this scenario. Cook dinner at home, have a potluck with friends, find the best specials around town for those days when you do want to go out to eat. There are plenty of ways to budget and save money without compromising your social life.
Essentials: 50% of your take-home income
To begin abiding by this budgeting guideline, set aside no more than half of your income for the absolute necessities in your life. This might seem like a high percentage, but once you consider everything that falls into this category it begins to make a bit more sense.
Savings: 20% of your earnings
Think of this as your “get ahead” category. Whereas 50 percent (or less) of your income is the goal for essentials, 20 percent—or more—should be your goal for putting money towards savings. You’ll pay off debt quicker, and make more significant strides toward a frustration-free future by devoting as much of your income as you can to this category.
Personal: 30% of your take-home income
The last category, and the one that can make the most difference in your budget, boils down to the unnecessary expenses that enhance your lifestyle. Some financial experts consider this category completely discretionary, but in modern society, many of these so-called luxuries have taken on more of a mandatory status. You need to be honest with yourself about what you want out of life and what you need your money to do in order to achieve those goals. A professional can always help, so don’t be afraid to get in touch with a qualified, empathetic, and knowledgeable financial advisor.