Budgets are not put in place just to pay bills on time, it is for your benefit to understand where your money is going and what it is being spent on. You can determine how much of your income is being paid out to bills and other expenses and how much you can save a month.

The 50/30/20 budget is a guideline to follow in order to capture your results on how much you can afford to spend on necessities, wants and savings/debt.

It is never too late to set a budget in place, it gives you the opportunity to learn the balance between all monthly expenses and savings

Getting started with the 50/30/20 budget

First things first, determine your monthly income. Your after-tax income is your net income - it is what remains of your paycheck after taxes are taken out. Taxes include state and local tax along with Medicare and Social Security. If you are an employee and receive a set salary, it should be simple to determine your net income because it is the same every month. 

Use the 50/30/20 budget to get your monthly expenses in order

50% - Necessities

You may think 50% of your monthly income is quite a bit, but when you realize how much money goes to those essential monthly expenses it will make more sense.

The necessary expenses are those that come around every month no matter what. They are pretty standard from one person to another - expenses including food, shelter, car payment, utility bills, auto, and health insurance. 

Confusing your wants and needs is common so being aware of what may fall into each category is key. For example, you need to pay the minimum balance on your credit card which may be $25 of the full $100 balance. The extra $75 is not a necessity, that falls into the savings/debt category that you will have a budget for. 

Any payment or expense that you can refrain from without major drawbacks such as your cable and Netflix subscription sometimes gets thrown into the necessities category rather than the want section.

It takes a little bit of time to fully understand your personal 50/30/20 budget but once you get the hang of it, customizing and tweaking can be done to accommodate your financial status. 

30% - Wants

If your monthly income is $3,500 then 30% of that is $1,050. Seems like quite a bit... I know you're thinking, "hello... new shoes, mini summer vacation and many restaurant dinners to come."

But wait, did you forget that extra NBA subscription on your cable bill or the wine and cheese for the girls night or the much-needed date night while the kids are at their grandparents?

The extra expenses add up a little quicker than expected, you end up spending more in “wants” than you think. A lot of times we tend to combine our wants and needs together.

Your $10 hotspot add-on to your cell-phone bill is a want, it does not fall under the “need” category with your cell phone payment because it is an extra expense that you can forgo but choose not to. It may be a little expense as low as $10 but at the end of the month it adds up making the 30% disappear quickly.


Making a budget should involve the whole family

20% - Savings and debt payments

This is where the extra $75 payment can be accounted for to pay off your credit card. 20% of a $3,500 income is $700 that can go directly into savings if you have no debt or you can repay debts, send to a retirement account or put into an emergency fund. With the best online savings accounts available now you can watch your month grow over time with a high APY interest rate.

It is always important to pay yourself first before purchasing other luxuries. 

Budgeting tips

Create a 50/30/20 budget. Determine your after-tax income, then write down everything you plan to spend for the month.

Automate your savings. Scheduling automatic payments from your checking account over to savings can help put money away before you have the urge to use it. There are many apps that can help with savings, including Digit - it calculates what you can afford to save depending on your income and spending habits/patterns. The savings get put into an FDIC insured account where you will just see your savings accumulate without moving a finger. 

Track your spending. Keep the accuracy of all your expenses down to a T. Make sure you track every cent that leaves your account. This also helps you know exactly which category you may not be calculating correctly.

Stick to it. Day by day, week by week, month by month, start with intentions to be successful at budgeting for your financial benefit.

A simple way to allocate your hard-earned money starts with planning.