How the 50/20/30 Rule Can Help You Budget

A monthly budget is one of those financial necessities that no one wants to think about, but everyone should. But figuring out how to allocate your money can be tricky. The 50/20/30 rule breaks it down simply: 50 percent to necessities, 20 percent to financial goals, and 30 percent to lifestyle.

First, a quick PSA: If you don't already have a monthly budget, time to start one. The 50/20/30 rule makes it easy. With this rule, the first 50% of your take-home pay goes toward necessities, such as rent or mortgage payments, utilities, loan payments, and tuition. Some people include food, clothing, and transportation in this bucket; others consider those to be lifestyle choices — the way you categorize them is up to you. The next 20% of your take-home pay should go toward savings and debt, or financial goals, including paying down credit-card debt, saving for retirement, building an emergency fund, or saving up for a vacation. According to this rule the last 30% of your income is devoted to wants, otherwise known as lifestyle choices. These are typically expenses that can vary by month and over which you have some control. These can include shopping, entertainment, gym fees, hobbies, and pet expenses, plus food, clothing, and transportation if you didn't include them in your necessities.