Chances are you’ve heard about the 50/30/20 budget rule—it’s considered one of the easiest budget styles to follow and (most importantly) it works. Under this rule, you should divide your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings. So, what exactly falls into each of those buckets?
This category covers everything you must pay and are necessary for survival (things like food, rent, car payments, and health insurance, not things like Netflix). By setting aside 50% of your after-tax income for these necessities, you should have enough to cover your needs. If you’re putting aside 50% and don’t have enough to cover your needs, reevaluate your expenses. Could you find a roommate to help lower your monthly rent? Is there a way to lower your car payment? Start here and make the adjustments that work for you.
Consider this category your “fun” money. This includes anything you want to spend money on, but isn’t an essential (hello, Netflix). Going out for dinner? It comes out of this category. Vacation? That’s here too.
The last category is savings. Experts suggest putting 20% of your after-tax income towards savings and investments. It’s recommended you have three months worth of expenses saved in an emergency fund. After that, focus on saving for the future or making additional payments towards your debts, like student loans.
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