Looking to create a monthly budget? Try the 50/30/20 rule! This simple and effective method involves dividing your take-home income into three categories: 50% for needs, 30% for wants, and 20% for savings and debt repayment. Essential expenses like rent and groceries fall under « needs, » while non-essentials like dining out and entertainment are considered « wants. » The remaining 20% should be used for savings and debt repayment. Remember, budgets are living documents that need to be regularly reviewed and adjusted to reflect changes in income and expenses.
A Good Monthly Budget Should Follow the 50/30/20 Rule
When it comes to managing your finances, creating a budget is essential. A budget helps you keep track of your expenses, save money and avoid debt. However, creating a budget can be overwhelming, especially if you don’t know where to start. That’s where the 50/30/20 rule comes in.
According to this method, your monthly take-home income is divided into three categories: 50% for needs, 30% for wants and 20% for savings and debt repayment. Let’s break down each category.
50% for Needs
Your needs are essential expenses that you can’t live without, such as rent/mortgage, utilities, groceries, transportation, insurance and minimum debt payments. These expenses should not exceed 50% of your monthly income. If they do, you may need to make some adjustments, such as finding a cheaper place to live, carpooling or cutting back on groceries.
30% for Wants
Your wants are non-essential expenses that you can live without, such as dining out, entertainment, travel and shopping. These expenses should not exceed 30% of your monthly income. If they do, you may need to cut back on some of these expenses or find ways to save money, such as using coupons or shopping during sales.
20% for Savings and Debt Repayment
The remaining 20% of your monthly income should go towards savings and debt repayment. This includes building an emergency fund, saving for retirement, paying off debt and investing. It’s important to prioritize your debt repayment and savings goals, so you can achieve financial stability and security.
In conclusion, the 50/30/20 rule is a simple and effective way to create a good monthly budget. By following this method, you can ensure that your essential needs are covered, your wants are within your means and you’re making progress towards your financial goals. Remember, a budget is a living document that should be reviewed and adjusted regularly to reflect changes in your income and expenses. With discipline and commitment, you can achieve financial success and live the life you want.
References for « What is a good monthly budget? »
- Dave Ramsey – How to Make a Budget
- The Balance – How to Create a Budget
- Money Under 30 – How to Create a Budget
- NerdWallet – How to Build a Budget
- Investopedia – Top 6 Budgeting Books
A video on this subject that might interest you:
TO READ THIS LATER, SAVE THIS IMAGE ON YOUR PINTEREST: