The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
Many experts agree that one simple way to budget is to divide your income into three parts: your needs, your wants, and your savings. One way to do this effectively is by using the 50-30-20 rule. This method is super easy to follow!
Introducing the three P's of budgeting
Think of it more as a way to create a plan to spend your money on things that matter to you. Get started in three easy steps — paycheck, prioritize and plan.
Refuse, Reduce and Reuse.
The term “3Rs” stands for:
Reduce: Reduce the amount of waste generated. Reuse: Reuse products and parts. Recycle: Use recycled resources.
Step #3: Start building
This includes the amount on your pay cheque, as well as any additional income sources, such as freelance work. If your income fluctuates each month, try to determine an average amount from the past several months. Next, write out all of your expenses in a given month.
The biggest chunk, 70%, goes towards living expenses while 20% goes towards repaying any debt, or to savings if all your debt is covered. The remaining 10% is your 'fun bucket', money set aside for the things you want after your essentials, debt and savings goals are taken care of.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.
If the 50/30/20 budget was once considered the golden standard of budgeting, it's not anymore. But there are budgeting methods out there that can help you reach your financial goals. Here are some expert-recommended alternatives to the 50/30/20.
The 60 percent solution budget has some similarities to the 50/30/20 rule, but instead of allocating 50 percent to essentials, 60 percent goes toward fixed “committed expenses” – your rent or mortgage, groceries, utility bills, etc.
“A place for everything, and everything in its place.” Change “place” to “wallet” and “everything” to “every dollar” and you've pretty much got Ramsey's time-tested strategy for a winning budget: “A wallet for every dollar, and every dollar in its wallet.”
Assign a task to every dollar you earn. Budget to save money, but be sure to set funds aside for entertainment, shopping, and other miscellaneous items. When every cent has a predetermined destination and income minus spend equals zero, you have created a zero-balance budget; this is the goal.
Refuse, Reduce, Reuse, Repurpose, Recycle – that offers improvement to the environment. Refuse: Refuse to buy or accept products that can harm you, your company and the environment.
Reduce, reuse and recycle: The “three Rs” to help the planet
Reducing, reusing and recycling plastic is key in countering the devastation wreaked by climate change. Plastics are a major source of pollution on Earth. Unbridled manufacturing and low recycling rates of plastic products threaten our planet.
The most mature part of you will meet the kid inside when you give. Giving is the most fun you'll ever have with money. Every financially, mentally, and spiritually healthy person I've ever met has been turned on by giving.
“Your income is your most important wealth-building tool. And when your money is tied up in monthly debt payments, you're working hard to make everyone else rich.”
The judge of CNBC's “Money Court” tells CNBC Make It that renters and buyers alike need to follow the 1/3 rule, which calls for a third of your after-tax income to go toward living expenses, a third toward your home and the last third toward savings and investments.
Try to keep your grocery budget to around 10-15% of. your income. If you spend less, great job! If you spend more, this is for you!
Some folks will need $10 million to have the kind of retirement lifestyle they've always dreamed about. Others can comfortably live out their golden years with a $1 million nest egg. There's no right or wrong answer here—it all depends on how you want to live in retirement!
Try a simple budgeting plan. We recommend the popular 50/30/20 budget to maximize your money. In it, you spend roughly 50% of your after-tax dollars on necessities, no more than 30% on wants, and at least 20% on savings and debt repayment. We like the simplicity of this plan.
Bottom Line. Living on $1,000 per month is a challenge. From the high costs of housing, transportation and food, plus trying to keep your bills to a minimum, it would be difficult for anyone living alone to make this work. But with some creativity, roommates and strategy, you might be able to pull it off.
1. The zero-based budget. The concept of a zero-based budgeting method is simple: Income minus expenses equals zero. This budgeting method is best for people who have a set income each month or can reasonably estimate their monthly income.