Figuring Out the “50-30-20 Budget Rule”
It’s easy to bump saving down on your priority list but taking simple steps today could make a big impact on your future. So if you ever find yourself looking for a way to balance your needs, wants, and savings, consider trying out this 50-30-20 rule!
It calls for 50 percent of your income to go toward your needs, 30 percent to your wants, and 20 percent to your savings.
Step one: Figure out your monthly income. Calculate your income after tax (also known as your net income). This is how much you make annually, minus federal and state taxes. Also, go ahead and subtract any deductions that are withdrawn automatically from your paycheck like healthcare, life insurance, or retirement plan contributions.
Step two: Identify your needs. Fifty percent of your income should go towards your needs. This is mortgage/rent payments, car payments, utilities, debt, and groceries. Basically, the items you can’t get away with not spending money on. Say goodbye to at least half of your paycheck for the necessities.
Step three: Explore your wants. Thirty percent of your income can go towards your wants. This is the stuff you like spending money on, like your streaming subscription services, gym memberships, going to the movies, restaurants, and travel. This is the fun stuff but try not to let it creep past the 30% mark, or it will begin to eat into your savings.
Step four: Start saving. Twenty percent of your income should go into a savings account. This is where you’ll begin to grow your emergency fund, put money away for retirement or save up for debt repayment. The better you are at limiting your “fun” spending, the better your savings account will look. Also, your savings account should be separate from your checking account, so you’re less tempted to spend the money you should be putting away for rainy days.
Warrick Dunn Charities, Inc. is proud to partner with COUNTRY Financial as a part of our Count on Your Future program. COUNTRY Financial is a group of US insurance and financial services companies with customers in 19 states. The group of companies offers a range of insurance and financial products and services, including auto, home, life, commercial insurance, retirement planning, investment management and trust services. For more information on the latest COUNTRY please visit their website.