If you’re struggling to maintain a consistent family budget, consider a simple formula:the 50/20/30 rule for tracking your expenses. Really more of a guideline than anything else, the 50/20/30 rule divides your expenses into three categories to allows you to respect your budget: needs, desires, and savings. To give you an idea of how it works, see how a median income household in the United States could use the rule to create a budget.
How a 50/20/30 budget works
As with other fiscal rules, such as the less formthe 50/15/5 rule—The goal is to help you track your spending so you develop sustainable spending habits and avoid reliance on high-interest debt. Here’s how it breaks down:
- 50% of your monthly expenses go towards the needs. Needs are essential expenses that you must pay to survive or continue working. This can include rent, transportation, utilities, and food.
- 20% of your monthly expenses goes towards savings goals. This category can also include debt payments because you have to pay them back.
- 30% of your monthly spending goes towards what you want. This can include your gym membership, travel, freebies, and meals.
What a 50/20/30 budget would look like in practice
Using the median household wage in the United States of $ 63,179 as a starting point we will have to deduct taxes. Obviously the state taxes will be different, but for this example I’ll use the estimated taxes for New York state, which leaves us $ 46,271 admission-home pay. This in turn leads to this monthly breakdown:
- 50% on needs = $ 192 / month
- 20% savings = $ 771 / month
- 30% on cravings = $ 1157 / month
Considering that an average monthly rent for two bedrooms can cost between $ 800 and $ 1800 depending on the state you live in, your accommodation will have the biggest impact on staying on budget, as well as on your debt load. (To see how a 50/20/30 budget would work for your income, look at this calculator).
Again, these are guidelines. If you live in New York or San Francisco, you could end up spending less on wants and more on rent, so the ratio gets closer to 65% of needs, 20% savings, and 15% wants, depending on this. that best suits your situation.. As part of this process, however, you can identify excess costs and hopefully eliminate them (for example, the gym pass you are not using, or a subscription TV service that you can cancel) to keep your expenses within your budget.
At the end of the line
As with all fiscal rules, the goal is to maintain a coherent budget that helps manage debt payments while setting money aside for retirement. If you are having trouble paying off your debts, Read more here about your debt repayment options.