11/01/2015
Dear Cloud lovers, let's begin sharing the first article about 50/20/30 budget. Have you ever heard about it? If your answer is no, then i'll inform you :)
One of the simplest ways to set up your budget is to follow the formula found in Financially Fearless *, the 50/20/30 budget. Sounds complicated, doesn’t it? It is not at all as complicated as it sounds; in fact, I believe it makes budgeting a whole lot easier.
50 percent is for your essentials
20 percent is for your future
30 percent is for your lifestyle
Let us break this down a little further.
50 Essentials
Your essentials are what you need to survive. Essentials are your food, shelter, and transportation to work (in order to earn money to provide for the essentials). Fifty percent of your total monthly income should go towards your basic survival needs. This is why it is imperative that you avoid overpaying on your home and car, as they will eat up too much of your fifty percent leaving you with little room for groceries. Make sure when you budget this category that you are not overpaying on your utilities every month, as that too will eat up too much of your fifty percent.
20 Future
Your future is your debt repayment, emergency fund, investments, and your retirement savings. How you decide to allocate twenty percent of your total monthly income to these categories is depended upon where you are in life and what your financial goals are. For example, if you are attempting to pull yourself out of debt, a huge portion of your twenty percent is going to go towards your debt repayment plan. If your retirement account needs a little love, a large portion of your twenty percent will go towards your 401(k) or IRA accounts.
30 Lifestyle
Your lifestyle consists of the things that you enjoy spending money on like travel, eating out, gifts, and shopping. This category is the first to go when you are in financial trouble, do not get caught up in the thirty percent outweighing your future. This account is intended to make living life fun but it will not be enjoyable if you are struggling to pay your monthly bills. Before planning out this category of your budget, make sure your essentials and future are balanced out before you play.
How you decide to divide the individual categories is up to you. You could set up to allocate twenty percent of the fifty percent towards your mortgage or rent payment every month. These individual percentages will look different for everyone. Personal finance is personal and although money connects us, it works differently for each of us.
