Whether you want to believe it or not, money is part of your everyday life, and there’s no way around it. In fact, only 24% of Millennials demonstrate basic financial literacy (Spendmenot); meaning that people are not implementing the idea of a budget their daily lifestyles. This creates quite an issue for society today, as we can see some very eye-opening financial statistics about Americans.
- The average credit card debt in America is $6,270.
- About 40% of Americans have LESS than $300 in savings.
- Only 39% of Americans have enough cash to cover a $1,000 emergency.
- Over 70% of Americans’ retirement plan is to just keep working.
It’s incredibly important to take control of your finances and find a budget that works for you and your future. A very popular, and effective budget is the 50/30/20 budget. Here is exactly what that entails and why it is so effective!
Remember: A budget can help you achieve your goals and future desires. You can use the money you save for smart investments, or life-long dreams such as homeownership.
50/30/20 Budget Explained
Essentially, the 50/30/20 budget is a well-known budget that splits income into different categories to control spending and saving. It’s important to note that the “income” referenced in this budget is referring to your income after taxes are taken out. Essentially, it’s the income that’s deposited into your account on payday!
50% Income Category
50% of your income should go to your needs according to this budget. Your “needs” are the expenses that you cannot live without or avoid. If you get paid $2,000, you will want to delegate $1,000 to this category.
Some expenses in this category include, but are not limited to:
30% Income Category
30% of your income should go to your “wants” or your “lifestyle.” Wants and needs seem to overlap sometimes, but essentially your “wants” are the extra things that aren’t essential for living. Following the same example, if you get paid $2,000, $600 dollars would be put towards your “wants.”
Some expenses in this category include, but vary by person to person:
20% Income Category
Finally, 20% of your income will go to your future. This covers savings, investments, and debts. On a $2,000 pay, $400 would go towards this category. Savings is the money put away to prepare for the future, whether this is towards a retirement account or in a personal savings account. Investments could be anything from stocks to bonds. Paying down your existing debt is also covered in this category; notice only the minimum monthly debt payment is accounted for in the “needs” category. However, remember that it is always ideal to pay total debt in full and not just the minimum monthly payment if you are able. With that being said, your future is important, so the more money you can allocate to this category, the better!
Some examples that could fall under this category are:
Your Future is in Your Hands
The bottom line is that finances are important, and a simple budget could set you up for a good future. Money management isn’t always easy, but it will help avoid and better manage stressful and challenging times. For a seamless 50/30/20 budget calculator, click here.
A strong budget and good financial planning could set you up to purchase a home of your own. If you are ready to begin the process or have a question, then contact a member of our team today!