How many times have you been overwhelmed by your finances? It happens to all of us. However, there is a way to combat this stress: budgeting.
The thought of creating a budget can be intimidating for many reasons. But what if I told you there were 3 simple steps to help you sort out your expenses and plan ahead for your future, all the while still having cash leftover to take that trip you’ve been planning or see that new movie? Introducing the 50/20/30 model.
50 – The Essentials
In this budget, 50% of your income goes towards your needs. I know what you’re thinking… 50% is a really big number. But, this includes ALL of your needs:
With this budget, you will take care of all of your routine obligations and not have to worry about how to make ends meet at the end of the month!
20 – Savings
There’s a reason the 20% is listed before the 30% in this budget: This portion is important! The 20% you set aside for savings includes savings plans, debt repayment (such as paying off student loans or credit card debt), retirement planning, and an emergency fund.
DID YOU KNOW?
Did you that if you started saving $1000 a year at age 25, at a fixed interest rate, by the time you reached age 65, your money will have grown by more than DOUBLE than if you started saving the same amount per year at age 35? This is all because of compounding interest – put simply, you will earn interest on your interest, meaning free money!
Savings plans can help you set aside money in order to take that vacation you’ve been dreaming about, pay back your debt in a quick and efficient manner or have an emergency fund set up for those unplanned moments such as getting a flat tire or dropping your phone.
30 – Flexible Spending
The problem with the idea of a budget is that it doesn’t give you room for fun, flexibility and freedom. But the good news is, with this budget, 30% of your income is devoted to just that! The flexible spending can be things that you deem necessary, like your phone bill, or something like going to a concert. Just remember to set up your budget in a way that will hold you accountable to how many coffee shops you visit or how many times you drive through Slim Chickens!
What makes the 50/20/30 model so effective is how easy it is to set up and use. To start using this model today, look at your pay stubs from the past month to see your monthly income. Then, track all of your spending for that month and separate those purchases into essentials, savings, and flexible spending. Finally, adjust your spending habits to fit within the percentages for your budget. It’s that simple!
Using online or mobile banking can help you keep up with your purchases in a quick and easy way!
Remember, this plan is flexible. If you can spend less than 50% of your income on essentials, then you have extra cash that you can put towards your savings. Start using the 50/20/30 model and take control of your finances today!