Creating a Budget
Managing your finances starts with setting up a simple budget. If you’re just starting out with budgeting, we recommend the simple 50/30/20 rule. This framework allocates 50% of your income for needs, 30% for wants and 20% for savings or debt repayment. Start by figuring out your after-tax income each month and your current expenses. It’s important to note that your income, expenses and priorities change over time, so actively managing your budget is key to success.
Your needs category should make up about 50% of your after-tax monthly income. This includes housing, groceries, utilities, insurance, transportation, child care and minimum loan payments. If your necessities total up to over the 50% mark, you will need to reduce the wants portion of your budget.
Budgets are a great tool to give you financial freedom, but that doesn’t mean you can’t ever spend money on items that aren’t essential. This category looks different from person to person, but generally includes dining out, entertainment and travel. Your streaming subscriptions and daily coffee runs would fall under wants.
Savings & Debt-Repayment 20%
The rest of your after-tax monthly income should be saved for the future or used to pay off debts. Setting up an emergency savings fund, contributions to retirement plans, and any payments over the minimum on credit cards or personal loans would fall into this category.