I think one of the main questions many people have about their personal finances is how to get started with a personal budget plan. In general, most people are in agreement that creating a budget plan is a great first step in understanding their financial position. When you are thinking about your personal budget, you think about your income and your expenses because, hey, that’s what a budget is! But when you get into the details of it, many people get stuck on what the breakdown or the percentage of their paycheck should go toward household expenses. You begin to consider all involved- the food budget, entertainment, vacation, housing, education…the list goes on!
I see people with a budget spreadsheet, from excel templates, to Quicken, and whatever other personal budget worksheet gadget there is. Don’t get me wrong, I love using the same templates but it’s still good to have a basic idea on how your money should be divided, would you agree?
Are you getting in a panic mode? Don’t worry! I think I have a pretty good solution! From personal experience with working on my own finances, working with others, and just doing research, I’ve found what I think to be the best solution.
50-30-20 is a personal budget breakdown that seems to be the most doable and successful. This budget plan states that you should calculate your net income (gross pay minus taxes and anything else that comes out of your check before it hits your bank account) and spend 50% on your NEEDS, 30% on your WANTS and 20% on your savings and paying off debt.
I’ll admit, when I first saw these percentages I didn’t think they were realistic…who can fit all of their necessities into 50% of their net income? And to think 30% can really go into “wants” seemed a little much. But once I started thinking about it, I realized many people categorize a “want” as a “need”. For example, you need a phone, but the additional services that are added are definitely “wants” and should be categorized as such. When it comes to your needs, it is vital you really think hard about the things you consider as a need because 50% goes fast and you want to spend it wisely, right?
These percentages are pretty universal, so they work (which is why I like it!). These are good guideline numbers without getting too complex and technical (because numbers can be that way on their own!!) I see some percentages broken down a little more (such as 25% should go to housing, 2% food, etc…a little extreme in my personal opinion). I think if you stick to the basic 50-30-20 concept, you’ll be way ahead of many!!
I really think this is a great method to start the budget process BUT I want to know what works for you! Share your secrets!!!!!