There are occasions where I like answers. There’s so much doubt in life, it’s nice to come across something that has ground rules. Generally you stick to said rules and things will work out okay. The 50-30-20 budget is such a thing. Sure, no one solution will work for everyone when it comes to budgeting. Then again, you can’t go too far wrong should you institute this strategy in your life. Here are some of the ins and outs of the budget.
Start With After Tax
It’s all very interesting to look at your paycheck and see how much money you are ‘losing’ to tax, but in the end of the day, it’s not going to make any difference to your budget. Work out how much income you have after-tax, and write it at the top of the page, probably with a big black pen to keep you on-task.
50%: The Must-Haves
Cable TV subscriptions don’t count. Rent, utility bills, school fees, groceries, insurance- these things are necessities. Some things straddle the line- for instance, I need my phone for work but I probably can’t count all my roaming charges for when I check my facebook. Internet access is a similar thing. If something can be delayed, then it’s probably not a necessity. My new jeans for instance. My phone bill, on the other hand, isn’t something I can really avoid- though I would love to taper down the costs over the next couple of months. For me, keeping my must-have expenses to 50% of my income is pretty tricky. I’m not a particularly high earner and have a lot of business related expenses, so to truly implement this budget, I would need to think long and hard about what truly constitutes necessity.
30%: The Wants
Finally! A budget that appreciates that having a good time is still allowable, even while being financially responsible. In this form, 30% of your budget ca be spent on wants. Dinners out, new clothes, a more expensive phone plan. These things are wants, and have an important place in your life. Keeping your expenses to 30% will keep you financially on top. Once you’ve spent it, it’s gone. You’ll have to stick to must-haves until your next pay check.
20%: Savings And Debt
The great part of the budget is that you can accommodate your particular circumstances- if you have no debt, that 20% can go on savings. If you’re struggling to pay it off, you can focus a little heavier on repayments. 20% doesn’t seem like a whole lot of money to be putting towards paying off your debts, saving for retirement, and bolstering the emergency fund- it can have the appearance of being quite a small amount of money being asked to do a huge number of things. But while 20% might not seem like it will get you anywhere fast, it’s a consistent number that won’t ruin your life in the process. The most important thing in saving- like eating healthily or getting to the gym- is being able to build into your life so it can stay in your life on a permanent basis.