50/20/30

Via discovery.com   Article

Starting a Budget With the 50/20/30 Rule

“Let’s face it: The task of starting a budget sounds about as exciting as an afternoon of dental work. That’s because most people think it involves hours of entering all your expenses into a spreadsheet, followed by denying yourself anything fun that costs money.

As it turns out, you can complete a budgeting exercise in much less time than you think — and still have room in your budget for things like dining out and concert tickets. Budgeting will also make it easier to save for mid-range goals, like an annual vacation or buying a home in three years.

The 50/20/30 Rule provides an easy-to-remember framework when creating your budget. Begin with this as your guideline:

  • 50% of your income pays for your needs (housing, transportation, food, utilities, etc.)
  • 20% goes toward savings and debt repayment (savings includes both short-term goals like emergency savings and long-term goals like investing for retirement)
  • 30% pays for your wants (the fun stuff that is definitely important, but your survival doesn’t rely on it)

You can alter the percentages a bit based on your personal situation, but this is a good starting point.

Separating Needs From Wants

Here comes the most complicated part of this budgeting exercise: What is a need, and what is a want? And when does something you think you need begin to creep into ‘wants’ territory?

Needs and wants are highly personal. Everyone needs a place to live, food, and transportation. But you might choose to not own a car so you can afford to live in a more expensive urban area, for example. Or you might limit restaurant meals to once a week because you want to save up for one expensive vacation a year.

A good question to ask yourself is, ‘What do I value?’ Is it a spacious home? Close proximity to your job? Access to good public schools for your kids? Reliable internet access at home so you can start a small business? A close-knit community in your neighborhood? The things you value will shape where you spend your money.

And remember — no one else can tell you what to value! Make these choices based on what’s really important to you.”

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