Following The 50-30-20 Budgeting Rule

When you want to make your money stretch as far as it can, you need to follow a budget. This can be quite difficult for some people because you feel like you don't have a lot of money left at the end of your savings in order to have fun. However, a good budget will have you better off financially if you can stick to it. There are many different budgeting plans that people can choose to use. One good budget to follow is the 50-30-20 budget. Below is some more information about what this budgeting plan actually is and how you can use it.

Where To Start

This plan will start your budget using your income after taxes are deducted. Your income after taxes is called your gross income and will be your earnings after taxes and other payments are deducted such as Medicare, Social Security and disability taxes. If you have other expenses that are taken out of your paychecks such as retirement payments or health insurance premiums, these will need to be added back into your income before you calculate your budget.

What You Are Aiming For

The main goal for this budget is to have your necessary expenses be only 50-percent of your after-tax income or less. Your necessary expenses will include things like your mortgage or rent, utilities, insurance premiums, food, transportation costs and more. Things like going out for dinner or buying clothing for social outings is going to be considered non-necessary expenses for the purposes of this budget plan. These are going to be referred to as your "wants."

Where The "30" Comes Into Your Budget Plan

Like stated earlier, the "50" in your budget refers to the amount you are able to spend on necessary expenses using your after-tax income. The "30" will be how much you can spend on your "wants" within your budget. You can spend the next 30-percent of your available income on anything you would like. Things to consider would be clothing, going out to the movies or out to eat, buying decorative items or taking a trip. While you are able to use this percent of your income on whatever you would like to, it is important to try and not go crazy. The more you save now, the better prepared you will be in the event of an emergency situation that needs money to fix.

How To Spend Last 20-Percent Of Income

Once you have spent your 50-percent on necessary expenses and the next 30-percent on whatever you want, you will be left with 20-percent of your after-tax income. According to this particular budgeting plan, this last bit of your income will be going towards any debt repayments and savings. It is important to make these payments because having too much debt and too little savings can lead to financial disasters. It is important to be prepared for emergency financial situations by setting some money aside for your debts and savings accounts.

Experts will say that the best way to achieve financial success in life is by minimizing your chances of a financial disaster. This can be done by getting rid of consumer debts, saving for your retirement and building a good emergency fund. Any time you make a loan payment beyond your minimums, this is the category that those payments will belong in.

Benefits Of The 50-30-20 Budget

For many, it may take some time to get your finances to match exactly with this plan. It could take months of practice and trimming your spending in order to get it right. However, once you get on track with the plan, you will soon notice the amount of benefits that it can offer you financially in the long run. Below are a few of the top benefits of using this budgeting plan.

  • Flexibility- This plan gives you flexibility even if your income drops drastically. You will find that you are going to be able to continue paying for all of your essential bills. When your essentials take up more than half of your after-tax income, you will not be prepared for financial set-backs.
  • Better Planning- This budget will allow you to see more clearly what you can and cannot afford to buy. If you are considering adding a new loan or planning a big purchase, this budget will allow you to see if you can comfortably afford it.
  • Balance- Another great benefit of this budgeting plan is that it can give you more balance in life when it comes to your finances. You will have less stress and be able to plan more adventures and vacations that you can actually afford.