Creating a Budget

PAID POST: Creating a budget using the 50-30-20 or 70-20-10 rule involves allocating your income into specific categories based on the given percentages. 

The 50-30-20 budget rule is a popular guideline for personal finance that suggests allocating your after-tax income into three main categories: needs, wants, and savings. Here’s a breakdown of the rule:

  • 50% for Needs:
    • This category includes essential expenses that are necessary for your basic living needs. Examples include rent or mortgage payments, utilities, groceries, transportation (such as car payments and public transportation), insurance, and minimum debt payments.
  • 30% for Wants:
    • This category covers discretionary spending on non-essential items and activities. It includes things like dining out, entertainment, hobbies, and other lifestyle choices that contribute to your well-being and enjoyment.
  • 20% for Savings:
    • This category is dedicated to saving and investing for your future financial goals. It includes contributions to retirement accounts, emergency fund savings, and other long-term savings goals.

It’s important to note that the 50-30-20 budget rule is a guideline, and individual circumstances may require adjustments. For example, if you have high-priority financial goals or are dealing with significant debt, you might need to allocate more to savings or debt repayment. It’s always a good idea to tailor your budget to your specific needs and priorities. Regularly reviewing and adjusting your budget is key to ensuring it aligns with your financial goals and circumstances. 

The 70-20-10 budgeting rule is another approach to allocating your income across different categories to achieve financial stability and goals. Here’s how the rule breaks down:

  • 70% for Living Expenses:
    • Allocate 70% of your after-tax income to cover your essential living expenses. This includes necessities like housing (rent or mortgage), utilities, groceries, transportation, insurance, and other basic needs. This category focuses on maintaining your day-to-day living standards.
  • 20% for Financial Goals:
    • Dedicate 20% of your income to achieving your financial goals. This can include saving for emergencies, contributing to retirement accounts, saving for a down payment on a home, or other long-term financial objectives. The goal here is to build a solid financial foundation for your future.
  • 10 % for Fun and Lifestyle Choices:
    • Use 10% of your income for discretionary spending and personal enjoyment. This category covers non-essential expenses such as dining out, entertainment, hobbies, and other lifestyle choices. It’s important to strike a balance between responsible financial planning and enjoying your life in the present.

As with any budgeting rule, it’s crucial to adapt it to your individual circumstances and financial goals. If you have specific priorities, such as paying off high-interest debt or saving for a particular short-term goal, you may need to adjust the percentages accordingly. Regularly review and adjust your budget based on changes in your income, expenses, and financial objectives.

Additionally both should continue to monitor all of the following areas to ensure you are keeping to the budget: 

  • Track Your Spending: Keep track of your actual spending in each category to ensure you’re staying within the allocated percentages.
  • Regularly Review and Adjust: Periodically review your budget to see if it aligns with your financial goals. Adjust as needed based on changes in income, expenses, or financial priorities.
  • Emergency Fund: Both budgeting rules include a savings component, but consider building a separate emergency fund equivalent to 3-6 months’ worth of living expenses.
  • Debt Repayment: If you have outstanding debt, consider allocating extra funds to debt repayment until it’s under control.

Remember that these budgeting rules are guidelines, and you may need to adjust them based on your unique financial situation and goals. Regularly reviewing and adapting your budget is key to financial success.