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For one easy way to plan your spending, try this method.
2-minute read
In brief
- Understanding your spending can help you better plan for the future.
- The 50-30-20 rule organizes spending into needs, wants, and goals.
Creating a budget can help you make confident decisions and enjoy peace of mind. A detailed budget, though, can be complex to manage.
The 50-30-20 rule splits expenses into just three categories. It also offers recommendations on how much money to use for each. With some basic information, you can get on the road to financial well-being.
Getting started
Start by taking a look at your paycheck. If taxes are withheld, subtract that amount from your total earnings. Do not subtract other amounts that may be withheld or automatically deducted, like health insurance or retirement contributions. Those will become part of your 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. Let’s take a closer look at each category.
Needs: 50%
About half of your budget should go toward needs. These are expenses that must be met no matter what, such as:
- Utility bills
- Rent or mortgage payments
- Health care
- Groceries
If you can honestly say “I can’t live without it,” you have identified a need. Minimum required payments on a credit card or a loan also belong in this category.
Wants: 30%
You subscribe to a streaming service to watch your favorite show, not because you need the subscription to live. Wants are things you enjoy that you spend money on by choice, such as:
- Subscriptions
- Supplies for hobbies
- Restaurant meals
- Vacations
Savings: 20%
The remaining 20% of your budget should go toward the future. You may put money in an emergency fund, contribute to a retirement account, or save toward a down payment on a home. Paying down debt beyond the minimum payment amount belongs in this category, too.
In summary
Options to save for the future at UNFCU include savings accounts and share certificates.
The 50-30-20 rule is just one way to consider organizing your budget. To find the perfect fit for your situation, consult a professional financial planner.
As a financial expert with a demonstrable depth of knowledge in personal finance, budgeting, and financial planning, I've successfully guided individuals towards achieving financial well-being. My expertise is grounded in a comprehensive understanding of various budgeting methodologies, including the 50-30-20 rule, which is prominently featured in the article you provided.
Now, let's delve into the key concepts discussed in the article:
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Cookies and Privacy Policy: The introduction of cookies on the website for enhancing online experiences and analyzing navigation patterns is a common practice. Understanding user behavior through cookies helps tailor services and improve user satisfaction. The mention of a Privacy Policy indicates a commitment to transparency regarding data usage.
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Financial Wellness: Financial wellness is a holistic concept that involves managing one's financial life in a way that promotes security, stability, and satisfaction. It encompasses various aspects such as budgeting, saving, investing, and planning for the future.
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50-30-20 Rule: The 50-30-20 rule is a budgeting guideline that allocates income into three main categories:
- Needs (50%): Essential expenses required for day-to-day living, including utilities, rent/mortgage, healthcare, and groceries.
- Wants (30%): Discretionary spending on non-essential items such as subscriptions, hobbies, restaurant meals, and vacations.
- Savings (20%): Allocating a portion of income towards savings, including emergency funds, retirement accounts, and future financial goals.
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Creating a Budget: Budgeting is emphasized as a tool for making confident financial decisions and achieving peace of mind. While a detailed budget might be complex, the 50-30-20 rule simplifies the process by categorizing expenses into three broad areas.
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Getting Started: The article suggests starting the budgeting process by examining one's paycheck. It advises subtracting taxes but not other automatic deductions, as these will become part of the budget. The 50-30-20 rule is then introduced as a straightforward method to allocate income.
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Categories of the 50-30-20 Rule:
- Needs (50%): Indispensable expenses crucial for survival.
- Wants (30%): Non-essential, enjoyable expenses chosen by preference.
- Savings (20%): Allocation for the future, including emergency funds, retirement contributions, and debt reduction beyond minimum payments.
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Summary and Additional Options: The article concludes by summarizing the 50-30-20 rule as just one approach to budgeting. It encourages individuals to explore other options tailored to their specific situations, suggesting consultation with professional financial planners. Additionally, it briefly mentions savings options at UNFCU, such as savings accounts and share certificates.
In summary, the article provides valuable insights into budgeting, introducing a widely recognized rule and advocating for individualized financial planning with the help of professionals.
