Reign in your financial life with the 50/20/30 budget formula

When it comes to money, we can all agree that there’s certainly no shortage of ways for us to spend it—food, rent, clothing, loan payments, entertainment, etc. You get the drift. But the reality is that, regardless of the size of your paycheck, you need to have a plan for your money. Because if you don’t, your hard earned cash will be like magic… poof, it’s gone!

For most of people, the problem has nothing to do with spending, it has everything to do with their personal behavior. According to Gallup, nearly 2 of 3 Americans don’t have a written or computerized household monthly budget that tracks their income and expenses. Sadly, that’s also the dominant reason for broken marriages and family in the United States.

So you want to know what’s the simplest, easiest way to allocate your money? The truth is; it depends. You may be in a hurry to pay off debt, so you’re willing to spend less on eating out in the meantime. Or you might live in a city where rent is prohibitively expensive, so you have to allocate more of your paycheck to housing.

Generally speaking, it’s impractical to give you a hard-and-fast rule for where to put your money. But for someone who never setup a plan before or the ones who are perplexed about setting up a budget; here is a general benchmark to consider; the 50/20/30 guideline.

Whether you’re a parent with two kids or a recent college grad working your first job, this 50/20/30 guideline can help you not only figure out how much you may want to allocate to each area every month; it can also help you determine the order in which your money can be allocated.

Fixed Costs (50%):

  • Everything you have to pay for monthly should fit in half your paycheck, wherever possible. If you earn $3,000/mo, don’t live in a place with $2,000 rent. Keep rent/mortgage, utilities, and recurring bills under that 50% line.

Financial Goals (20%):

  • This category should be devoted to some form of goal you have. This can include building your savings, paying down debt, building an emergency fund, and so on.

Flexible Spending (30%):

  • This category can include anything that changes month to month. That can mean things like grocery shopping, but it can also include your entertainment budget, or your hobbies.

With the the 50/20/30 budget rule, it’s easy to keep a handle on your finances. For example, when you’re shopping for a new place to live, it’s a handy guide to ensuring that your cost of living will be manageable, rather than overwhelming you.

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