50/20/30 Budget Rule

Senator Elizabeth Warren popularized the so-called “50/20/30 budget rule” in her book, All Your Worth: The Ultimate Lifetime Money Plan. 

• The 50-20-30 (or 50-30-20) budget rule is an intuitive and simple plan to help people reach their financial goals.
• The rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must-have or must-do.
• The remaining half should be split up between 20% savings and debt repayment and 30% to everything else that you might want.
• The rule is a template that is intended to help individuals manage their money and save for emergencies and retirement.

50%: Needs

Needs are those bills that you absolutely must pay and are the things necessary for survival. These include rent or mortgage payments, car payments, groceries, insurance, health care, minimum debt payment, and utilities. These are your “must-haves.” The “needs” category does not include items that are extras, such as HBO, Netflix, Starbucks, and dining out.

Half of your after-tax income should be all that you need to cover your needs and obligations. If you are spending more than that on your needs, you will have to either cut down on wants or try to downsize your lifestyle, perhaps to a smaller home or more modest car. Maybe carpooling or taking public transportation to work is a solution, or cooking at home more often.

30%: Wants

Wants are all the things you spend money on that are not absolutely essential. This includes dinner and movies out, that new handbag, tickets to sporting events, vacations, the latest electronic gadget, and ultra-high-speed Internet. Anything in the “wants” bucket is optional if you boil it down. You can work out at home instead of going to the gym, cook instead of eating out, or watch sports on TV instead of getting tickets to the game.

This category also includes those upgrade decisions you make, such as choosing a costlier steak instead of a less expensive hamburger, buying a Mercedes instead of a more economical Honda, or choosing between watching television using an antenna for free or spending money to watch cable TV. Basically, wants are all those little extras you spend money on that make life more enjoyable and entertaining.

20%: Savings

Finally, try to allocate 20% of your net income to savings and investments. This includes adding money to an emergency fund in a bank savings account, making IRA contributions to a mutual fund account, and investing in the stock market. You should have at least three months of emergency savings on hand in case you lose your job or an unforeseen event occurs. After that, focus on retirement and meeting other financial goals down the road.

source: investopedia

Always bring a list when you go to the store.

One of the easiest ways to go over budget when you’re at the grocery store is to walk up and down every single aisle without a plan.  I’m personally guilty of going into a grocery store not knowing what I needed and walking out wondering what on earth happened. I ended up spending WAY TOO MUCH money because I didn’t have a plan in place.

To keep this from happening, always be sure you have a list with you when you go to the grocery store.  Even better, only go down the aisles that you truly need to go down and skip the rest. Skipping the extra aisles will help you stick to your list and only grab what you need.

Make a meal plan so you aren’t tempted to go out to eat.

By far one of the biggest budget busters is food. Every month people overspend on food by hundreds of dollars. If you want to stick to your budget each month, then create a meal plan before the week begins. Be sure to cook simple meals that you’ll actually enjoy so you won’t want to run by and pick up food on your way home from work.

–> Read more: Types of Food Make Your Body Smell Great & Instantly Sexier

Keep your savings account separate so you aren’t tempted to touch it.

If you struggle with impulse shopping then chances are you might have dipped into your savings in the past to buy something you wanted. To keep this from happening again, keep your savings completely separate. Find an online savings account or keep your savings account completely separate from your checking account. Make it a little more difficult to take money out of savings. Your future self will thank you!

Pay debt FIRST

Trying to pay off debt? Instead of waiting to send extra money to debt at the end of the month, send it right away! I’ve personally learned over time that if you let extra money sit in your checking account, you are likely going to spend it on something you hadn’t planned for.  Simply paying off debt right away will help you stay on track and reach your money goals quicker.

Be prepared for unexpected expenses.

Life is full of surprises! There will come a time when your car breaks down, your pet needs to visit the vet, or you have an unexpected house repair. To help prepare for these types of expenses, set up sinking funds in your budget each month. A sinking fund is a savings account you set up for expenses that you know are going to occur eventually.

Let items sit in your cart for a few days when shopping online.

If you’re anything like me, then you’re guilty of buying things online without even thinking about it. Chances are you found a way to justify the purchase saying that you “needed it.”  Next time you’re tempted to buy something online, let the item sit in your cart for at least 3 days. I’m guessing you won’t even want the item after 3 days. And if you do still want it, work it into your next budget!

Make saving money automatic.

One of the easiest budget and money hacks is to set up automatic withdrawals for your savings. Instead of forcing yourself to save money every single month, have it done for you. You can have money directly withdrawn from your paycheck, or withdrawn the day after you get paid.  Over time you won’t even notice that the money is missing.

 Keep your budget simple and live on less.

More and more people are jumping on the minimalist lifestyle. And to be honest, I can see why! You don’t have to go full-blown minimalism to reap the rewards of living a simpler life. Try keeping your budget simple and living on less. You’ll be surprised that you might even like it. Living on less will help you focus on the things that are more important in life (rather than all the stuff you’re buying).

Set savings challenges for yourself.

Sometimes saving money just isn’t fun at all. To help make saving enjoyable, create a challenge for yourself! You can find tons of savings challenges online, or create one on your own! Get your friends and family involved to help hold you accountable along the way

Have clear goals with your money…and refer back to them often!

If you want to see a change with your money, then it’s time to get serious about setting goals. Be sure to set goals that are specific and can be measured over time. When you feel yourself losing focus, refer back to the goals you set. Post them on your bathroom mirror, refrigerator, or even the bedroom door. Remember, just writing a goal won’t get you there. You have to do the work to reap the rewards!

source: inspiredbudget