Budgeting is an important part of life. You may wonder though, why does it matter if you make a budget? Ever checked your bank account and was surprised a bill came out that you had forgotten to plan for? Budgeting helps to prevent that. Budgeting helps track not only your spending, but also your expenses, and your savings.
Your first step to creating a budget is to calculate your take-home income. This is what you bring in after taxes and other deductions like insurance. This number is your starting point. Your next step is to use the simple 50/30/20 rule.
- 50% of income for needs (rent, utilities, groceries, bills, etc.)
- 30% of your income for wants (entertainment, dining out, etc.)
- 20% of your income for savings and debts (credit card, automated savings, etc.)
These percentages are a simple framework to help you allot for your money without going crazy thinking you’ll never have fun again. Once you calculate how much money goes towards each section your next step is to track it. There are apps you can use for this or even a simple spreadsheet. Some people prefer to use an envelope system of keeping cash in envelopes for each category. Now the 50/30/20 rule is just a basic framework. You may find a different ratio works better for your situation. Whatever way you decide to divvy up your money though, make sure to track it so you won’t get surprised by upcoming bills. Sites like NerdWallet can be a great resource on your path to having a handle on your finances.