If you’re just getting started budgeting, you may want to keep things simple. The best way to avoid overcomplicating your budget is by following the 50/30/20 plan. This breaks your monthly income into 50%, 30%, and 20%. So instead of having to remember every dollar amount for every little spending category, you have three quick and easy budget lines.
50% on Necessities
Necessities include those bills you must pay every month. This includes your rent, your utilities, and other bills to upkeep your home. Other necessities include your groceries and gas, as well as auto insurance. Look back on past bank statements to ensure you’re including all necessary items. Some recurring monthly expenses may need to be cut back if you feel they aren’t truly necessary or utilized.
30% on Wants
This discretionary spending is reserved for the additional spending throughout the month – such as dining out. This 30% also accounts for entertainment spending such as concerts, movies, and sporting events. Finally, this category also includes your non-essential shopping for clothes, beauty, and luxury goods. This is typically the category where people tend to overspend without even realizing. By budgeting out 30%, you will learn to save unnecessary purchases until there is room in the budget. This will help you prioritize saving. You will learn to plan ahead and budget around concerts and events, and in time you may avoid impulse purchases all together.
20% on Savings
While it may not sound significant compared to the 80% spent each month – if you commit to a steady plan of saving 20% each month, it will add up. Additionally, if you compare it to a dollar saved then promptly spent – these inconsistent savings never amount to anything. The beauty of the 50/30/20 plan is that it acknowledges that you have expenses and additional wants, accounts for them, and still allows you to save. This is an easy way to stay honest with yourself about budgeting while still having room in the budget for a night on the town. The key – as with any budget – is to stick to it.
Evolve Bank & Trust is here for you as you begin your savings journey. Learn more about our savings account options here.