For a long time, I struggled with budgeting, especially when I first graduated from college and started working full-time. I had new expenses (some were unnecessary) and wasn't sure how to manage it with my new increase in income. Even though, I eventually figured it out, I wish I would have known about this type of budgeting then. I currently budget by paycheck ( I'll tell you about my paycheck budget later) but this is a great place to start if you are budgeting for the first time.
It's called the 50/30/20 budget. In this style of budgeting, you take your take home pay and place your expenses in each bucket.The expenses in each bucket should not go over the assigned percentage.
Here the breakdown of each bucket and what they include.
50% - Needs
The Needs bucket includes all of your expenses that you need to live daily. These expenses should not be higher than 50% of your take-home pay. If you have to reduce your expenses this is a good category to start because the expenses in this category take up most of your budget. Fixed expenses includes:
Rent/mortgage
Utilities
Car payments
Minimum Student loan and credit card payment
Groceries
Child Care Expenses (some people put this in the lifestyle category but I consider it a need)
Cell phone (if you don't have a home phone, if you have a home phone this is a lifestyle choice)
Car insurance
20% - Financial goals
The Financial Goals bucket is where you allocate your savings, extra debt repayment and anything else that goes toward your financial goals. Do not include savings for retirement if you have it deducted from your paycheck before taxes, but you should include any after-tax investing. Here are some of the payments you include in this bucket.
Saving (opportunity fund)
Extra debt payment (credit card and student loan payments)
After-tax retirement savings
After-tax Investing
Savings for specific goals (wedding, travel, home, college)
30% - Lifestyle Choices
This bucket should be in the range of 30% of your take home pay but you should compute how much you pay in Needs and Financial buckets first before you allocate any money to this bucket. In this bucket you will include:
Vacations
Netflix
Entertainment
Beauty maintenance (hair, nails, brows)
Apple music
Spotify
Gym memberships
Hobbies
Pets
Cable
Gifts
TWEET IT! ALLOCATE MONEY FOR YOUR NEEDS AND FINANCIAL GOALS BEFORE YOU ALLOCATE MONEY FOR YOUR LIFESTYLE EXPENSES.
There are some items that will be a lifestyle choice for you and not for others, such as, your cell phone. If you don’t have a house phone, then your cell phone is a necessity but if you do have a house phone, your cell phone is a lifestyle choice. This is another bucket where you should look to reduce, if your expenses are more than your income.
Below is a list of monthly income & expenses.
Monthly Income
Income (take home): 3600/ month
Monthly Expenses
Rent /Mortgage: 825
Electric: 55
Gas (heat): 125
Car payment : 275
Water: 30
Visa Credit Card: 25
Student loan: 250
Food: 180
Cable/Internet: 87
Cell phone: $70
Life Insurance (term): 21
Car insurance (clearly not in NYC): 87
Example of a 50/30/20 Budget
Fixed (50%) - $1,800
Rent/Mortgage - $825
Electric -$55
Car payment- $ 275
Water - $30
Life Insurance - $21
Car Insurance- $87
Cell phone - $74
Visa Credit Card - $25
Student loan - $255
Financial (20%) - $720
Emergency/Opportunity Fund - $360
Extra debt payment - $360
Lifestyle (30%) - $1,080
Life Insurance - $21
Cable/internet - $92
Any additional expenses that belongs in this category
I definitely feel that the 50/30/20 budget makes it easier to create a budget, especially if you are new to budgeting. If you are trying to get out of debt, I advise that you write out the exact amount for each expense so you can get a clear picture of where you are spending your money. It will also show you if you have more money available to put towards paying off your debt and saving/investing more.
As I stated before in this post about budgeting, it may not be perfect the first few times and that is okay. You will get better each time you create a budget, you just have to keep working at it.
What do you think about the 50/30/20 budget?
