Advance America: How the 50/30/20 Budget Can Help You Save Money

iCrowd Newswire
01 Jul 2022, 02:18 GMT+10

If you're looking for a simple way to budget and save money each month, the 50/30/20 budget may be right up your alley. It's a practical guideline that'll make divvying up your paycheck a bit easier and allow you to save with intention. Let's dive deeper into how the 50/30/20 budget works and some money-saving tips that can help you in the long run.

What is the 50/30/20 budget?

The 50/30/20 budget is a budgeting method that helps you to divide your income into different groups so you can have more control over where your money goes. This method provides you with a plan for your finances so you always know where to put your money, and can also help you avoid overspending. Your after-tax income is divided into three categories: needs, wants, and savings or debt.

Needs: 50% of your income

Your needs are considered anything essential to you that you can't go without. With the 50/30/20 budget, you'll apply 50% of your after-tax income to go directly toward expenses like:

Rent/mortgage

Groceries

Car insurance

Phone bill

Utilities

Wants: 30% of your income

Your wants are the extra expenses you spend money on but can live without. They're usually things you do regularly each month, like:

Going out to eat at restaurants

Gym membership

Hair appointments

Clothes

Birthday/holiday gifts

Savings or debt: 20% of your income

Lastly, you'll allot 20% of your after-tax income to your savings or debt. Having a surefire plan for building up your savings and tackling your debt will ensure that you reach your goals faster. You can schedule your money to be automatically moved into a savings account each pay period to help you stay on track.

Some examples of savings can be:

Emergency fund

Retirement

Down payment for a house or car

College tuition

Vacation

Examples of debt include:

Credit card debt

Car loans

Personal loans

Mortgage repayment

Business debts

How to create the 50/30/20 budget

Here are some steps you can take to create the 50/30/20 budget:

Calculate your income: Before implementing the 50/30/20 budget into your daily life, you should first calculate your monthly take-home income to know how much you have to work with. This will make it easier to put your money in the right places.

Categorize your expenses: Next, label your monthly expenses for each category of needs, wants savings, and debt, making adjustments as needed. If you spend a little too much in the wants area, you can reduce your spending or eliminate something you can go without so that all the numbers add up.

Start using your budget: Once you've calculated 50% of your income for needs, 30% for wants, and 20% for savings and debt, you can follow through each month with tracking your expenses and spending habits to stay on track.

How can the 50/30/20 budget help me save money?

The 50/30/20 budget helps you save money because it allows you to manage the income you have so that you're in control of your finances. Rather than aimlessly saving here and there, you have a plan in place to spend money on needs and wants and set aside funds for things like emergencies, vacations, and retirement. Having a financial cushion on hand is helpful in any situation that may come your way, so the earlier you start saving, the better.

The bottom line

The 50/30/20 rule is a great way to measure how much of your money you should put toward your monthly expenses. Giving your income a purpose will help you better manage your finances and build up your savings for whatever the future may hold. Saving money isn't always easy, but with the right tools and budgeting method, you can reach your goals and enjoy the reward of the work you put in.

Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.

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