50/30/20 Budgeting: Part 1
Gaining control of your finances and setting up a budget can be a stressful process. Where do you begin? Do you start with how much you want to save...How much you want to spend...How much you need to just get by? The answers can be endless and confusing. But, if you have a good template, some extra time, and the motivation to get your finances in order, you will do yourself a favor and decrease your stress levels without sacrificing your lifestyle.
In college, I would set up a budget to abide by but I never really followed it. Oops. I definitely didn't save a penny, I wasn't too worried about not having enough to cover my expenses, and I pretty much spent a lot of money on clothes, eating out, getting my nails and hair done, bars, spray tans, and so much more. Fast forward to now. I am married and have a beautiful daughter. I majored in accounting in college so I know all about personal finance and how to properly budget, I just didn't want to until I got married. My husband and I sat down together and over the course of a few hours we developed our family budget.
The budget my husband and I modeled our finances after is the 50/30/20 rule. I had never heard of this rule until my husband introduced it to me. The rule basically states that 20 percent of your income should be directed towards savings or paying down debt, 50 percent of your income should be used for necessities, like rent/mortgage, utilities, groceries, etc., and 30 percent of your income can be for your "wants". It is that simple. If you think about it, 30 percent of your income should be enough money for you to have some fun with still, and 20 percent to savings is a great way to keep a rainy day fund or start a retirement account. An important tip though is these percentages are only a general guideline, and they can be adjusted based on your lifestyle.
If you wish to take this rule a couple steps further, think about automatically transferring money into your savings account so it's not immediately available (out of sight, out of mind). You will quickly become accustom to your new income, and your future self will love you for it. It will take a month or two to adjust, but you'll get there. As they say, "trust the process."
Finally, if you need further guidance or want more information about your spending habits a nice tool you can use is your online bank account and banking apps. With this, you should be able to view your spending habits at a high level. This is a very helpful tool and can show you where you need to improve your spending to better control and improve your finances.
See 50/30/20 Budgeting: Part 2 for an in-depth look at this method.