Are all of you familiar with the 50/30/20 rule? It’s used in budgeting and is basically a guideline for managing your after-tax income.

Take 50% of your net income and apply it to your needs. Needs include rent/mortgage, utilities, food, transportation, insurances, minimum debt payments, and anything else you require to exist. Restaurants are NOT included in the food category, but grocery stores are. Insurances include medical, auto, renters/homeowners, and any other type of insurance you have. Transportation includes gas/oil, auto repairs, bus fares, train passes, etc. Anything you pay to transport you, and your family would be included here. Utilities include gas/electric, water, internet, phone, garbage, sewer, and any other utility you pay for. You will want to include the minimum payments on your credit cards, car payments, and student loans as well. Additionally, you may need to include things like childcare or financial assistance to elderly parents which impact your budget.

Next, 30% of your net income goes to wants. In my wants category, I include entertainment, restaurants, gifts, vacation, subscriptions, charity, and my discretionary spending. If you pay for streaming services, they would be included here under entertainment. Charity is included here because of the flexibility to adjust your wants spending in other categories to allow for money for donations. Discretionary spending is just that, spending I choose throughout the month. It could be anything. It might be something for a hobby or tickets to a concert. You may have different wants than I do so include them in your 30%.

Lastly, 20% of your net income should be applied to savings and debt repayment. For debts, include things like extra payments towards your credit cards, car payments and/or student loans. You want to get those paid off as quickly as possible. Adding money in your emergency fund, and retirement accounts are also included in this category. Additionally, you can start saving for a home, your next vehicle, or other major purchase.

Let’s say you bring home $4,000 each month after taxes. You could then allocate $2,000 to your needs, $1,200 to your wants, and finally $800 to your savings and debt repayment. While this example is simplistic, it gives you an idea on how to set up your budget based on your income.

Moral of the story:

If numbers aren’t your thing and you don’t want to use a zero balanced budget, think about using the 50/30/20 rule method instead. You won’t have to track every single dollar. It’s not as restrictive. Give this method a try and let me know if you like it.