Budgeting 101: Personal Budget Categories | First Bank (2024)

FAQs

What are the first categories to consider when making a budget? ›

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.

All monthly budgets start with your disposable income — the amount of money you take home from your paycheck after taxes, retirement savings, and other deductions. According to the US Bureau of Labor, the current American salary in 2024 is $53,490 per year, but that's before taxes.

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.

Planning your personal finances means managing your money in a way that helps you reach your financial goals. Personal Finance 101 is about making a budget, saving for the future, and making smart choices about how much to spend and where to put your money. The earlier you start it, the better.

If you want a simpler approach to managing your money, the 50/30/20 budgeting method could work well for you. It's a good alternative to more in-depth budget plans if you find that tracking your expenses in multiple specific categories is overwhelming, because it takes a more straightforward approach.

What is a 'pay yourself first' budget? The "pay yourself first" method has you put a portion of your paycheck into your savings, retirement, emergency or other goal-based savings accounts before you do anything else with it. After a month or two, you likely won't even notice this sum is "gone" from your budget.

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.

What is a good savings rate? ›

At least 20% of your income should go towards savings. Meanwhile, another 50% (maximum) should go toward necessities, while 30% goes toward discretionary items. This is called the 50/30/20 rule of thumb, and it provides a quick and easy way for you to budget your money.

Poorman suggests the popular 50/30/20 rule of thumb for paycheck allocation: 50% of net pay for essentials: groceries, bills, rent or mortgage, debt payments, and insurance. 30% for spending on dining or ordering out and entertainment. 20% for personal saving and investment goals.

In the 50/20/30 budget, 50% of your net income should go to your needs, 20% should go to savings, and 30% should go to your wants. If you've read the Essentials of Budgeting, you're already familiar with the idea of wants and needs.

financial goals, current expenses, and income.

The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

1. Assess your financial resources. The first step is to calculate how much money you have coming in each month. This might be investment income, government assistance, student loans, employment income, disability benefits, retirement pensions or money from other sources.

The Key Components of a Budget

Learn about net income, fixed expenses, variable expenses, and discretionary expenses and examples of each.