For others, the lack of detail could make it harder to find ways to improve their spending habits. Having three categories to track might help prevent you from getting bogged down in the process of categorizing each individual expense. So you may need to adjust the percentages to fit your situation. For example, people who live in a high-cost area may have to put a large part of their income toward housing, making it almost impossible for them to keep their needs under 50%. Depending on your income and where you live, earmarking 50% of your income toward your needs may not be enough. The 50/30/20 Rule can be a good budgeting method for some, but whether the system is right for you will be determined by your unique monthly expenses. Is the 50/30/20 budget rule right for you? You can also set up direct deposit, so that a portion of your paycheck goes right into your savings account. You may also want to think about taking an extra savings step by using “round up” programs online or with mobile apps that take your debit card transactions, round them to the nearest dollar, and automatically transfer the “change” to your savings. Whether that’s part of your regular savings account or means opening a second savings account, an emergency fund is exactly how it sounds - money allocated as a buffer for unexpected expenses such as medical bills, your car breaking down, or a layoff. It could also mean contributing to an investment account or a retirement account, like a 401(k) or IRA.Īlso, consider an emergency fund. Opening a deposit account to save for a down payment, vacation or any other larger goal would all fall within the savings category. By bringing more awareness to how you spend money, you can discover opportunities to cut expenses and save more. However, that’s why using the 50/30/20 Budget Rule can be so helpful. We get it - 20% can be tough, especially during times when inflation is on the rise. The remaining 20% of your income should go toward saving money. If you want a new suit or dress for an event, consider rental services that allow you to borrow and return clothing for a fraction of the price of buying new. And be careful when it comes to the word “upgrade.” We all want a better experience, but often upgrading a phone plan, vacation package, or even your closet can put a dent in your savings. However, just remember there’s no judgement for what your individual wants are. Love your Pilates studio? Consider lower-priced options, such as working out at home via an app. To avoid overspending on this category, consider meeting friends for lunch instead of dinner when the prices are (usually) lower, or better yet, cooking a meal at home. In the grand scheme of things, these purchases may be important to you, but they are optional costs. While you may have strong opinions on what constitutes a want as opposed to a need, a want could be anything from taking the subway instead of walking to work (assuming work is close to your home), weekly nights out with friends at expensive restaurants or subscriptions to several streaming services at once. Optional expenses, or “wants,” should account for 30% of your income.
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