Written by: Chelsea Spears, Farmers National Bank
Let’s be honest. Budgeting can be hard.
Most people throughout modern-day history would probably agree with that statement. But now in 2024 with inflation, rising interest rates and an uncertain economy – sticking to a budget may feel nearly impossible.
However. With a little guidance, a plan, and some self-evaluation – it is attainable.
And as it turns out, there's a simple rule of thumb to help get you on track to meet your financial goals.
50/30/20 Budget
The 50/30/20 Budget is one general guideline to help plan out your finances. Under this line of thinking, spending is divided into three categories: Needs, wants and savings.
As the name implies, this budget suggests you dedicate 50 percent of your paycheck towards your needs, 30 percent towards wants and 20 percent towards savings.
So what does that entail?
Needs include things like housing (think: rent or mortgage payments), groceries, and utilities.
Wants, on the other hand, are things you would like to have in your life, but aren’t necessary. It may include eating out at restaurants, hobbies and/or entertainment.
Finally – there’s savings. (And we know what you’re thinking – 20 percent towards savings??) Not to worry. That 20 percent includes whatever funds you’re dedicating to a 401k or Roth IRA and an emergency fund, in addition to your traditional savings account.
Real Life Example
So how does the 50/30/20 budget work in real life?
Let’s use the below example.
Say you make $1,500 a paycheck. Here’s how you’d divide it up:
- $750 towards needs (50 percent)
- $450 towards wants (30 percent)
- $300 towards savings (20 percent. Again, this includes what you contribute to your retirement accounts)
Or - look at it monthly instead. Perhaps you bring in $5,000 a month together with your significant other. Your budget would be as follows:
- $2,500 towards needs (50 percent)
- $1,500 towards wants (30 percent)
- $1,000 towards savings (20 percent)
Customize It
The 50/30/20 budget is a general method to help you on your financial journey, but it may not work for everyone.
For example, if you have a lot of debt, 20 percent of your income might not be enough for the savings portion.
But – that’s the beauty of this budget. It’s customizable! Try out 40/30/30 or 45/25/35 instead. At the end of the day, it’s all about what works for you and your goals.