This simple system can help you manage your money with minimal headaches
By Matt Smith
Budgeting can seem a daunting task, especially if it’s been some time since you last sat down and took a good look at your finances, but it needn’t be. The 50/20/30 budget may be just what you need to get on top of things and to give you more control over your personal finances.
The idea is simple: calculate your monthly after-tax income, then divide your expenses into the categories of Needs, Wants, and Financial Goals. These percentages are more of a guideline than a hard-and-fast rule, but the system is a great way to start being more proactive about your day-to-day finances, and to set yourself up to achieve your financial goals.
50%: Needs
Half of your budget every month should cover your needs: housing, food, transportation, utilities, and other necessary expenses. If you drive to work, this means gas and car payments. Monthly fees for any credit cards you have fall into this category, as well.
20%: Goals
Budgeting isn’t just about making the most of what you have; it’s about planning for the future, as well. This means paying off any debts you might have, as well as adding to your savings and investments. Any credit-card payments beyond the monthly minimum fall into this category. Similarly, the 20% covers investments savings, and contributions to your retirement fund.
30%: Wants
This is quite possibly the trickiest category to sort out, because you have to be realistic in differentiating between your wants and needs. Nonetheless, giving yourself the freedom to spend 30% of your income however you choose means that budgeting doesn’t have to suck all the fun out of your life. It will, however, require you to consider what personal purchases you find the most important and to prioritize.
Photo: iStock/bernardbodo.
