Making A Budget: What Is The 50–20–30 Method? – Michael Annerino

Michael Annerino
Things To Know Before Renting A Home Or Apartment

Forming a budget can seem like a stressful concept to be tied to each month. Limiting oneself in any field can be difficult, but with the right attitude and guidance, it can certainly be done. A budget is a key component to growing up, which may be another reason that it seems like such a daunting task to some folks. Regardless, you should at least try to embrace the 50–20–30 method, even if it’s just for a trial run. If this process of budgeting doesn’t work for you, there are other ways to save money each month.

The 50–20–30 method is a way of saving and keeping a track of your income each month. Here’s how it works:

50% –First, designate 50% of your income to costs that you consider to be “essential spending”. Essential costs include things such as bills, rent, gas for your car, etc.

20%–Then, designate 20% of your income to specific financial goals. The wording may seem a bit vague but what this basically means is that you put money aside each month to either save or to put towards investments or debt.

30%–Finally, designate 30% to nonessential spending. This basically includes pleasantries like eating out, going to the theater, buying video games, clothes, shoes, etc. Obviously, more than any other category in this method, these costs are influenced by your daily life. For some people, these listed nonessential costs are actually essential costs for jobs or other various reasons. Reflect on your current spending habits and figure out what is essential and what is not. In other words, this is the “want” category as opposed to “needs”.

Now that you know more about the 50–20–30 method, give it a try for a month or two. If it works, then keep it going. But, if it doesn’t work out then there are plenty of other ways to go about creating your budget. This way is just very easy for beginners or for those who are having trouble saving with other methods. Thanks to our Tips To Create A Budget blog, you can read about the other key factors in making a budget without leaving our website.

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