How to create a budget with the 50-30-20 rule
The pandemic brought a lot of unexpected challenges. We’ve all had to be flexible — and so have our budgets. After more than a year of trying to find our financial footing on shifting sands, we’re working towards adjusting to the new normal.
Now that the kids are headed back to school and movement is happening, this is the ideal time to revisit your budget. Maybe it’s a bit outdated for your current circumstances. Maybe you’ve never had one before. Or maybe you’ve been so busy just trying to stay afloat that you’ve lost track of it entirely. Wherever you’re at, we’ve got a simple formula to get you back on track.
It’s called the 50-30-20 rule. Here’s how it works: Add up your take-home income and divvy it up into three buckets—50 percent for needs, 30 percent for wants, and 20 percent for savings and debt repayment. That’s it! As long as you follow this basic formula, you can create a realistic budget that covers your expenses and helps you grow financially.
Not only is it easy to remember and simple to apply, but the 50-30-20 budget is pandemic-proof. Since you’re dealing with percentages instead of fixed dollar amounts, this type of budget adapts easily to changes in your financial status. Here are a few tips to help you use the 50-30-20 formula successfully:
Learn to separate needs from wants
One of the biggest challenges with this budget is distinguishing your actual needs from the things you want. While some needs are obvious (like food), others may vary from person to person. A good rule of thumb is that needs are the things that are essential for living and working, such as:
- Minimum loan payments
Prioritize your savings bucket carefully
The 20 percent of your income that goes to savings and debt repayment may not be as exciting as the “wants” category, but this is the chunk that will keep you moving forward in life. Your 401(k) contributions fall into this bucket, as well as your personal savings and any debt payments you make beyond the minimum monthly payment. If you don’t have an emergency fund, aim to sock away three to six months’ worth of income. If you’ve got debts to pay down, start with the higher-interest ones.
Use Financial Wellness with your MyOCCU Online & Mobile account
The easiest way to ensure you stick to your budget is to automate it. You can monitor your spending and make adjustments with the Financial Wellness widget right from your MyOCCU Online & Mobile account. You already have the tools at your fingertips to:
- Track your spending within each bucket.
- Set up automatic transfers to your savings account.
- Set alerts if your spending in any category exceeds a certain amount.
Your budget doesn’t have to be rigid or complicated. In fact, the best budget frameworks are easy to use and can flex with life’s changes. The 50-30-20 rule offers a straightforward spending plan that can empower you to take control of your money and keeping you moving toward your financial goals.