Put 50 percent toward “needs.” Needs include monthly essentials like rent or mortgage payments, food, utilities, student loans, and credit card minimum payments.
Put 30 percent toward “wants.” Wants include new clothing, entertainment, and going out to eat.
Put 20 percent toward savings and debt. This bucket includes paying down credit cards, building up savings accounts, or creating an emergency fund for unexpected expenses. It’s much easier to plan to set aside savings than to try to skim off a few dollars at the end of the month – at which point, there might not be much left.
The 50/30/20 method gives you the freedom to make choices about where to apply the money in each category. You’re not trapped in a dollar-by-dollar budget that may become too rigid to follow. Remember, the point is to be aware of these budget buckets so that every month you’re meeting obligations, whittling away debt, and having a little fun!
