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How to Set Up a 50/20/30 Budget
Debt payments
Debt payments may look confusing when you add it to the savings column. But the easiest way to build up a savings balance is not to have your money go toward debt. Once your debt is paid off, you can increase the savings.
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The 50/20/30 budgeting method
With the 50/20/30 budgeting method:
- 50% of your monthly spending goes toward essentials - your home, your food, etc.
- 20% of your monthly spending goes toward savings goals. It also includes paying down debts as it helps you build savings later.
- 30% of your monthly spending goes toward everything else. That might include travel, gifts, and dining.
Debt payments
Debt payments may look confusing when you add it to the savings column. But the easiest way to build up a savings balance is not to have your money go toward debt. Once your debt is paid off, you can increase the savings.
Reducing your essentials
Play around with your monthly budget to see where you can reduce your monthly spending:
- You could contact your internet company to get a discount.
- You can clip coupons and use rebate apps to spend less on your monthly groceries.
- You could set aside less for medical expenses if you have an emergency fund.
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A Monthly Budget For Your Money
No matter how little or how much money you earn, creating a monthly budget is one of the most important aspects of managing your finances. What gets measured gets managed.
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The Envelope System
The Envelope system is a way to track your variable expenses like food, entertainment, and drinks.
This method, preferably used weekly, allocates a certain amount in each category in labeled envelopes (food, drinks, movies, etc.). Once the envelope is empty, you are done spending in that category.
How to Create a Good Budget
The principles that make a good budget, something you can stick to:
- Being Realistic: Being too strict is a recipe for failure.
- Making Adjustments: A budget is not set in stone, but a fluid thing.
- A Team Sport: If you live with a partner or spouse, you have to agree mutually on how to budget the financials.
- Expect the Unexpected: Keep an emergency fund, ideally 3-6 months of necessary expenses.
- Budgeting the Expected: Certain upcoming expenses need to be budgeted in advance, like property tax, holiday shopping, etc.
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The Golden Rules of Personal Finance
- Spend less money than you earn
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Budgeting = creating a plan to spend your money
Budgeting is simply balancing your expenses with your income.
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How to create a budget
- Gather Some Financial Information: gather a detailed list of your income and expenses.
- Select a Budgeting Method: figure out how you’ll budget your money to meet your most pressing financial goals.
- Create Your Budget: tally up all your expenses and income to see where you stand and allocate expenses.
- Execute Your Plan: you can use a notebook, pen and paper, a spreadsheet or an online software.
- Reward Yourself: you can work a small percentage into your budget to treat yourself each month.
The 70:20:10 budgeting method
This method suggests that you allocate 70 percent of your income to expenses, 20 percent to savings, and the remaining 10 percent to debt.
70:20:10 may work for someone with a healthy emergency fund and minimal debt.
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