The 50-30-20 Plan for Money | St. Johns Bank
For many people, the idea of creating a budget seems entirely excruciating and they expect sticking to one would be a huge, everyday hassle. Fortunately, the reality is much more simple than the fear.
The issue is many people imagine making and keeping a budget to involve aggressively price shopping for every grocery item and limiting how much they can use their money to enjoy life now.
While the prospect of a better financial future may be appealing, it often doesn’t have the draw of getting a meal from a restaurant or holding off on replacing socks with holes on them.
The truth is, a good budget can take care of your required expenses, building your financial future and giving you some spending money for your wants. Fortunately, we have one in mind that may just be perfect for your situation if you want to get on solid financial footing without pinching pennies.
An Easy Budget to Follow
The 50-30-20 budget concept comes from Senator Elizabeth Warren’s book “All Your Worth: The Ultimate Lifetime Money Plan,” which she wrote when she was a professor at Harvard Law School. The concept is simple and deals with dividing your income like this:
- 50% to needs
- 30% to wants
- 20% to savings
Needs are the absolute essentials, recurring expenses you can’t cut out of the budget. That includes housing, utilities and debts such as student and car loans. Additionally, basic groceries and clothing should be included here.
Wants are the fun and splurges you want, and their inclusion here are part of what makes this budget easier to live within for many people. This could be trips to the movies, dinners out, and even cable and internet. Additionally, subscriptions such as Amazon Prime and Netflix and vacation plans should come out of this pot.
Savings is the easy one: It’s money you put into a long-term account that may provide a return, such as interest. The first goal with savings should be building an emergency fund that can help you cover unexpected expenses. You may also use savings for a down payment on a house or even to pay extra on debts so you can retire those faster and save on interest.
If you need a little help figuring out how much of your income should go in each bucket, NerdWallet has a calculator that can help.
If you want to make dividing your income into the buckets easier, St. Johns Bank can automatically divide your deposits between one checking account for needs, another for wants and a savings account for, well, savings. Talk to one of our financial experts today to get started!