Spring isn’t just the perfect time for deep cleaning. It’s also a great opportunity to spruce up your spending habits and create a budget! Now is the time to start thinking about your financial goals so you can enjoy your favorite things without unexpected expenses raining on your parade.
Why Should You Start A Budget?
With warmer weather, follows the urge to splurge. Indoor plants, outdoor furniture and a new Spring wardrobe are just a few things that’ll have your pockets chirping. Budgeting is a great way to create a customized plan to prevent you from spending more than what you’re making each month while still giving you the flexibility to enjoy the change in season. There are many methods to help you create a budget that won’t leave you feeling congested, but the most common is the 50-30-20 rule.
The 50-30-20 Budget Rule
Budgeting doesn’t mean you have to give up your seasonal favorites; it’s a plan to help you create financial balance each month. There are many methods to help you jumpstart your financial wellness journey, but the 50-30-20 method is the blossom of the bunch. The goal behind this percentage-based budgeting method is to essentially divide your monthly income into 3 sections: spending 50% on “needs”, 30% on “wants” and 20% on “savings”.
50% On Necessary Monthly Spending
“Needs” are monthly expenses that must be paid in order to ensure your survival. For most, “needs” may include things like: rent, car insurance, utility bills, cell phone, health insurance and personal up keepings.
The “needs” section doesn’t include things that you can live without like: streaming subscriptions or takeout!
30% on Monthly “Wants”
“Wants” are expenses that you have each month that aren’t a necessity and can be considered an optional expense. Things like gym memberships, eating out, gifts, impulse shopping, going out to movies and Starbucks are a few monthly expenses that can be considered optional.
If you’ve invested in your “wants” long enough, it may be difficult to consider them an optional expense. However, the first step in creating healthy financial boundaries is determining what are a few monthly investments can you indulge in moderation.
Saving 20% of Your Income
After you have accounted for your “needs’ and “wants,” the remaining 20% of your income is put towards your savings. Saving is an important aspect of financial wellness because a sufficient savings can allow you to expand your options for decisions that can have an impactful effect on your quality of life.
Savings goals vary depending on the person or the circumstances, but many people save to:
- Build out an emergency cash fund.
- Purchase a new home or car.
- Pay for college.
- Prepare for a new child.
A good rule of thumb when thinking about saving without a specific goal is to aim for three to six months’ worth of essential expenses.
Is the 50-30-20 Budgeting Rule For You This Spring?
The 50-30-20 budgeting rule is a straightforward method of financial planning, making it perfect for budding budgeters. Determining if the 50-30-20 rule is right for you depends on your individual goals and circumstances. It’s not uncommon for those starting their financial wellness journeys to have a few weeds to take care of before having a flourishing financial identity.
Things like pending debt or high cost living areas may make it challenging to allocate higher percentages of your income to a specific category, so adjusting your percentages may be necessary. However, the 50-30-20 rule may benefit beginner budgeters with an easy-to-follow structure to keep them on track.