The 60/30/10 budget turns the traditional rules of budgeting upside down. Instead of focusing on discretionary spending, this budgeting rule emphasizes sprinting toward our financial goals. And although the 60/30/10 rule budget won’t work for everyone, many could use it to take their finances to the next level. Here’s what you need to know about the 60/30/10 rule budget.

What is a 60/30/10 budget?

The numbers in the 60/30/10 each represent a percentage of your financial plan.

• With this system, you will use 60% of your take-home pay to build your savings or even an early retirement account, invest, save up for a down payment, or repay debt.
• Next, you will spend 30% on your needs. These might include food or frugal meals, rent or mortgage payments, utilities, healthcare, and transportation like car payments.
• Finally, you use the remaining 10% of your budget to pay for discretionary spending. These wants might include new accessories, a spa day, or other ways to pamper yourself. You may also spend money on hobbies, entertainment, or other non-essential expenses.

Who is it ideal for?

After seeing the percentages, you might be curious to know who would thrive under the 60 30 10 rule budget. Ambitious savers are best suited for this budgeting style, especially if they have an ultimate lifetime money plan that includes a big money goal.

If I have big financial goals, then prioritizing saving might seem right.

For example, let’s say I want to pay off a large amount of debt fast. Putting 60% of my take-home pay towards that goal will help me achieve that goal faster.

Another example is anyone interested in achieving FIRE; Financial Independence Retire Early. It is no secret that those seeking FIRE must save a significant amount of money.

Pros and cons of a 60/30/10 budget

As with all financial choices, there are some advantages and disadvantages to sticking with the 60/30/10 idea. Here’s a closer look at the pros and cons you should consider before diving in.

Pros

Let’s start with the pros of the 60/30/10 rule budget. This idea has some significant upsides.

Faster progress toward financial goals

The most obvious advantage is that you’ll accelerate your timeline for any financial goals. Whether you want to build emergency fund savings or save money for a big-ticket item, saving 60% of your income in your savings accounts will help you accomplish that more quickly.

Disciplined spending on what excites you

You can still have fun with your spending. But you’ll need to be intentional and only spend on things that really matter to you. It helps to determine what your wants truly are when using the 60 30 10 rule budget.

For instance, if I really value traveling but instead usually spend my extra money on coffee and shopping, then I would need to change my spending. I would stop spending on those categories and focus on saving for my next vacation.

Motivation to boost your income in creative ways

If you want to boost your discretionary spending within the rule, you must increase your income. It could be the perfect way to stick to your side hustle.

The budgeting rule can help you accomplish your financial goals. Plus, it helps you uncover what type of discretionary spending is truly important to you.

Cons

Of course, there are also some downsides to consider. An extreme budget like this isn’t for everyone.

Limited discretionary spending options

Depending on your wants, it might be challenging to cut back on your discretionary spending. Some people prefer a more luxurious lifestyle and this budgeting method restricts those types of purchases.

For example, if you’re used to spending half of your income on discretionary expenses, it will be a major adjustment. But you can do it if you really want to prioritize your money savings goals!

Adjustments to your lifestyle

You may need to cut back on the needs in your life to keep it within the 30% rule. It might include cutting back on housing through house hacking or transportation and car expenses. Also, eating at home versus dining out and finding ways to drastically cut expenses.

It is clear that you might need to make some cuts to your spending within this budget. You’ll need to decide for yourself if the cutbacks are worth it.

The math may not work for your income right away

Unless you have a very large income, this budget could be challenging without some major lifestyle and financial changes.

For instance, even if you make $10,000 a month, your expenses would still need to be very low ($3,000) for this to work. So if you have this income and your expenses are $5,000, you would need to switch up some percentages or drastically change your lifestyle.

To make this work, you can either increase your income, decrease your expenses, or both.

How do you set up a 60 30 10 rule budget

If you want to move forward with a 60/30/10 rule budget, here’s how to set one up. Check out the following guidelines:

Step 1: Determine your take-home pay

The basis of the 60/30/10 budget is your take-home pay. It includes the money you earn after you account for taxes. 

If you are an employee, it may be as easy as looking at your paycheck to determine your salary. But if you are an independent contractor or business owner, it can be more difficult to nail down your take-home pay and monthly income.

The IRS offers a free tool to help you determine how much you should expect to withhold for taxes. But if you run into questions, it is a good idea to talk to a tax professional to help you determine exactly what your take-home pay is.

Step 2: Allocate to your financial goals first

Once you determine your take-home pay, it is time to allocate 60% of the funds to your financial goals. The best part is that your financial or savings goals will be entirely unique to your situation. You may decide to build an emergency fund, start investing, or pay off debt from credit cards or student loans.

Before you take any action, take some time to find and choose examples of financial goals that align with your future.

Perhaps you want to start investing. That’s a great step! But you should consider what your long-term goals are to ensure you make investments that will work for you.

As an example, one of my major savings goals is retirement. Let’s suppose I need to save $1,000,000 to reach my goal. Based on my current income and this budget, it might take about 20 years to reach this number.

But now I have a financial goal with a number, a time limit, and a long-term plan.

In addition, I should determine what investments will be best for my retirement goal in 20 to 30 years.

Step 3: Take care of your needs

Next, you will use 30% to cover your needs. Necessities encompass the essentials of life. Some examples include housing, utilities, food, groceries, transportation, and healthcare.

You may need to shop around to build a lifestyle that fits within 30% of your income.

For example, you might decide to drive an older car or choose to cook at home more to save money. In addition, you may get a roommate in order to reduce your house payment.

Step 4: Spend the last 10% on things you want

Last but not least, the remaining 10% of funds is to be spent on things that you want.

Whether you want to take a lavish vacation or upgrade your simple wardrobe to a more extravagant one, you’ll know what your spending limits are.

Don’t be tempted to skip spending on the things you want. It is important to treat yourself to the things that matter to you. Otherwise, it can be easier to let the entire budgeting plan fall apart.

Expert tip: Focus on having specific savings goals

Since you aren’t going to be spending as much money with this budget, it’s important that your savings goals feel very worthwhile to you. They need to be specific to your situation and also things that are very fun or interesting.

For instance, I really value being a home owner, so saving a down payment will be worthwhile.
Or perhaps you want to travel the world for a year and save a lot for retirement.

No matter what, make sure your goals are important to you. Also, be sure to use vision boards or create mini goals in order to stay focused.

What to avoid with this budget

There are several things you should avoid including being caught unaware by unexpected expenses. Since the percentage for necessities with this budget is low, there isn’t much room for error. Beware of increases in necessities like housing costs or groceries due to how inflation affects a household, etc.

Another thing to remember is not to confuse or mxi up your categories, like what is essential and what is extra non-essential spending. Remember your percentages and keep spending in check!

Last, don’t take on extra credit card debt, as it can be too much to handle. I find that not increasing my debt burden helps me to pay things off in a timely manner and can make this budget work long-term.

How does the 60/30/10 budget differ from the 50/30/20?

The difference between the 60/30/10 budget and the 50/30/20 budget are the percentages. The 50/30/20 budget was created by Elizabeth Warren and her daughter, Amelia Warren Tyagi. The idea is that 50% of your income pays for expenses and needs, 30% is for wants, and 20% is for savings.

The 50/30/20 budget is easier to achieve for many people because it is less extreme. With this approach, you save 20% of your income instead of 60%.

However, many people now believe saving more is better, especially with the rising cost of living. So it’s really up to you what percentage you feel is best to save or invest. You may lean more towards a higher saving percentage, or you might choose to spend more on living expenses, depending on your unique situation.

Is the 60/30/10 budget right for me?

The rule is an enticing choice for anyone who wants to improve their financial situation. Before you jump in, take a minute to be realistic about your current income. If you have a lower income, this plan might be too extreme at first.

Ultimately, this budgeting strategy is possible for everyone. However, you may need to consider increasing your income through a unique side hustle. Or making major cuts to your spending on big-ticket items like housing and food.

Of course, there are many other types of percentage budgets that you can try first if needed to get in the groove of saving.

For instance, the 70-20-10 budget, 30-30-30-10 rule, 50/30/20 budget, or the 80/20 rule are great budgets to start with.

If these don’t suit you, you could move back to the 60 30 10 rule budget! The main thing to remember is to pay yourself first so you are sure you save money before spending it.

What is a 60/30/10 rule example?

Let’s look at a couple of actual monthly budgets using this system. Suppose my monthly income is a net pay of $5,000. Next, I’ll divide it into categories. 60% of $5,000 is $3,000, 30% is $1,500, and 10% is $500.

In this scenario, I could save $3,000 for a down payment and an emergency fund. I would pay my bills with $1,500, including rent, groceries, and insurance. Then, $500 would be mine to use as I like.

For example, I might go to the movies or go on a weekend getaway.

You can see how this type of budget works better if you have a larger income.

For instance, let’s say the budgeter has a take-home pay of $12,000 per month. That gives much more money to pay bills and more to save. You would save $7,200 (60%), use $3,600 (30%) for necessities, and use $1,200 (10%) for fun.

Even with a high income, this rule is best used when you have big savings goals and your necessary expenses are quite low.

More articles related to budgeting

If you enjoyed learning about this budget and how to apply it to your finances, check out these other posts next!

• What Is The 70-20-10 Budget?
• 10% Rule: Is Saving 10% Enough?
• What Is The 60-20-20 Rule And How Does It Work?
• Save $5K With The 200 Envelope Challenge!

Save more money with the 60/30/10 budget!

The 60 30 10 budget could help to transform your finances. You’ll significantly accelerate your progress toward long-term financial goals. But you may need to spend some time boosting your income through multiple sources of income to make this budget a comfortable reality.

If you need some help creating a budget that works for you, then take advantage of our completely free budgeting course. You’ll find helpful guidance for setting up a budget that fits your goals and finances! For more fantastic financial tips, join the Clever Girls Know podcast and YouTube channel!

The post How Does The 60 30 10 Rule Work For Budgeting? appeared first on Clever Girl Finance.

When you are paid on a biweekly basis, it may make sense to create a biweekly budget. A biweekly budget is perfect for those who get paid every other week. You can structure your budget around your paychecks so you don’t miss anything with your money, and you can find out how here!

There are many monthly budgets to choose from, but it may get confusing if you get paid a few times in the month. Or perhaps you are simply looking to budget by each paycheck to have better control of your finances.

Personally, I’ve found using this budget game-changing. I have more control over my finances than ever before by budgeting this way. The process is not complex as long as you plan things out and set aside some time to prepare it.

If you are curious, I’ve got you covered with this guide on creating a biweekly budget. You’ll also find links to some excellent biweekly budget templates to help you start!

What is a biweekly budget?

A biweekly budget is a budget that considers a person getting paid every 14 days. So you will usually get a first paycheck and then a second paycheck in the same month (with some exceptions depending on the month e.g. some months will have three pay checks).

Some other pay schedules are getting paid monthly, weekly, and semi-monthly.

The difference between bi-weekly and semi-monthly pay schedules

The biweekly and semi-monthly pay schedules are slightly different as the total number of paychecks per year varies. The key difference is that you get 26 biweekly paychecks versus 24 semi-month paychecks.

That said, creating a bi-weekly plan gives you control over your finances because you can allocate specific expenses to specific paycheck each month.

How does a biweekly budget work?

With a biweekly budget, you will have ten months where you collect two checks and two months where you collect three checks. 

Even though your paychecks may be different in some months, many of your fixed expenses will stay the same. When you set up a biweekly budget, you’ll need to your expenses and income and lay it out for each month.

When I first started bi-weekly budgeting, I have to make sure I was properly distributing my income to specific expenses and goals each pay period. It was a little tricky at first to figure out how to do this but after a few weeks, I came up with an approach that works for me.

I essentially assigned bills that had due dates in the first two weeks of the month to one paycheck, and bills with due dates in the last two weeks of the month to the other paycheck. When it came to my savings goals, I decided on specific dates each month that I would like to “pay myself” and I split those payments according to when I would get paid.

Pros and cons

There are a few things to consider when setting up a biweekly budget. Some people find it makes life easier to budget on a weekly or monthly basis.

However, you can budget based on how you are getting paid. Here are some pros and cons of the biweekly budget.

Pros of a biweekly budget

1. Takes into account the timing of your paycheck and the pay period.
2. Using a bi-weekly expense planner allows you to plan and save up for the unique event.
3. The months with extra paychecks allow more room to pay off debt or save.
4. It is much easier to keep track of bill payments and times with the budget in place.

Cons of a biweekly budget

1. The initial input and setup take time. 
2. You may have to move around bill payment times to make it work.
3. There is a chance of not using the third paycheck appropriately.

How to create a biweekly budget

Now that we have the basics down let’s look at the steps in creating a biweekly budget. You want to ensure you can easily cover all of your essentials.

That means your rent (or mortgage), utilities, groceries, etc. Here are the steps to follow:

Step 1: Set up a calendar

To start creating your biweekly budget, you’ll need to set up a budget calendar with your bill due dates, pay dates, savings plans, and other important dates.

Having a calendar gives you a visual view of everything that will occur during the month, this way you can plan each bi-weekly check you get accordingly. That means that you can manage your first and second paychecks without worrying between them.

You can do this on a spreadsheet to have a visual view of everything that will occur during the month.

Step 2: Organize your expenses according to your bi-weekly pay

Once you have your calendar set up, ask yourself if you need to adjust the due dates on certain bills so they are more evenly spaced. Base this on when you get your bi-weekly pay so you don’t get behind on bills.

Look at when your mortgage, utility bills, and credit cards are due. Think about all the monthly expenses you pay out of your account.

The goal is to be able to cover the expenses that fall in each 14-day window with your bi-weekly paycheck. Split your expenses up into different categories to help you get this right.

Utility companies and other sources of your recurring bills can be quite accommodating when it comes to moving bill payment dates. Don’t be shy to call and ask for your due dates to be moved.

If you want to be sure you haven’t missed anything, it can be helpful to review your last few months of bank statements.

Step 3: Don’t forget your variable expenses

Once you have all your recurring expenses in place, go back through the month and examine any other potential variable or one-time expenses that could arise, such as entertainment costs.

For example, are there birthdays this month? Do you have to make an extra payment toward a larger debt? Are you planning a vacation or do you have a back to school shopping list?

Determine where to best fit them in your bi-weekly budget template. You should plan to review your variable and one-time expenses ahead of time every month.

If you want some extra help here, there are plenty of tools available. Some people find that using an expense tracker or debt tracker works for them, for example.

Step 4: Create a buffer

I personally think that this is the most important step for a biweekly budget. When all of the consistent and variable expenses are in place, go back through the budget and add a buffer.

The buffer should be for emergency money and big upcoming costs that would fall under sinking funds. Having this extra money is a huge help if/when an unexpected or big expense should come up. If you don’t use the buffer, keep it saved.

Step 5: Start tracking your budget

Now that your budget is in place, the last thing to do is start tracking. You must keep track of all spending and savings so that your personal budget is accurate. Keeping a spending journal can help!

There will be things that come up that are not part of your plan. These can be extra income or extra expenses, so make sure you track them all.

So, set a bi-weekly reminder to check in on your budget and make your bill payments and savings account transfers every two weeks. You might want to use a budget binder or download a PDF budget template to help you.

Biweekly budgeting tips

As you can see, the process of setting up a biweekly budget is not all that difficult. It takes an hour or so at the beginning of the month to plan out any expenses and income for that month. If you have mostly recurring expenses, it can take even less time.

Having this head start and being aware of the month ahead can help you ensure you are financially stable. Here are some great tips for biweekly budgeting.

1. Make sure you write everything down.
2. Use an app on your phone to track spending if necessary.
3. If your bill due dates are not working out, call companies and ask to change the due dates.
4. Save up for one month of expenses so that you will always know you have the month covered should something come up.

What to do when you have a third paycheck

Ready for some good news? Getting your third paycheck in a month will feel like a bonus if you follow your biweekly budget correctly. There are so many great ways to use that paycheck, but here are a few of the best options.

1. Pay down your debt.
2. Put some money away towards a big bill coming next month.
3. Plan ahead and grow your emergency fund.
4. Save for a vacation or a significant home expense that may be coming up.
5. Use it to put aside an entire month of expenses as a backup.

Best biweekly budget template options

Although you can always create your own biweekly budget templates, sometimes it is much easier to just print one. There are many different styles out there, so you can find one that matches your preferences.

1. Biweekly budget planner from The Savvy Mama
2. 101 Planners free budget template 
3. Templates free biweekly budget templates 
4. Vertex biweekly budget template

You can try each bi-weekly budget template. Or create a biweekly budget planner using a binder and make space for your bills, bank statements, and other financial documents.

Expert tip: Save a “fun” fund too

We’ve gone over how to cover your basic expenses but that said you make money so that you can enjoy your life. When you’re creating your budget, be sure to set aside some cash for the fun things in your life too. 

Alternatively, you might want to use your third paycheck for this from time to time. For example, I have found that this extra “bonus” is useful when covering trips away, parties, and special occasions. 

How much should I save bi-weekly?

If you can, it’s a great idea to set a goal of saving 10% to 20% from each paycheck when you are budgeting on a bi-weekly basis.

Of course, there will be times when saving that amount is out of reach. If that is the case, keep it as a goal for the future and instead you can aim to save at least 5% of your income each paycheck.

Is a bi-weekly budget different from a semi-monthly budget?

Yes, a bi-weekly budget and a semi-monthly budget are different. With a bi-weekly budget, you are planning your finances based on getting paid every 2 weeks (14 days). In a 12 month period would get paid 26 times.

Whereas with a semi-monthly budget, your plans will be based on getting paid twice a month. And in a twelve month period, you’ll get paid 24 times.

With a bi-weekly budget you will get an extra paycheck twice a year. So it’s important to look at the calendar and determine which months you’ll get paid three times so you can properly plan for this money! I like to use this pay to accelerate my savings goals or plan for big events like family trips.

Articles related to budgeting and saving

If you found this article helpful for managing your budget, check out these other ideas!

• Make A Weekly Savings Plan (Or Bi-Weekly Savings Plan) That Works!
• Are Biweekly Mortgage Payments A Good Idea?
• How To Do A 6 Month Savings Challenge!
• The 50-30-20 Rule: How It Works + A 50 30 20 Budget Template

Try the biweekly budget to manage your finances!

Now that you have everything you need to develop a biweekly budget, set aside time on your calendar to get started. We know the process of putting this all into place can be a bit daunting, but it is indeed the right path to becoming fiscally responsible and successful.

It’s hard to see exactly where your paycheck is going until you put it down on paper. Putting together a budget is eye-opening and will change how you think about day-to-day spending.

If you are paid biweekly, then a biweekly budget planner can be the best method for your finances. The more specific these plans can be, the better your chance for success.

The key is to manage your money wisely so you don’t have to live paycheck to paycheck. Learn more about ditching debt, saving money, and building wealth with our blog and completely free financial courses!

The post How To Create A Biweekly Budget In 5 Simple Steps appeared first on Clever Girl Finance.

There are many different ways to come up with your perfect budgeting strategy. Alongside your monthly budget, you should also have a bare bones budget waiting in the wings. Even if you don’t need to cut back completely right now, it’s a good idea to know how to create a minimal-expense budget and have it ready so you are prepared in case of a financial emergency.

What is a bare bones budget?

It’s a budget that only covers the necessities. Meaning you will only spend enough money to survive with the basic essentials and fulfill your minimum financial obligations.

With a bare bones budget, you do not leave any room for extra spending.

Sound restrictive? It definitely is. That’s why this is not a plan for better budgeting in the long-term.

In normal conditions, you should also leave space for you to buy things you don’t necessarily need but that you want—like vacations, nights out, and lattes. (That’s right—treating yourself to lattes will not lead to financial ruin.)

On the other hand, this budget is a short-term solution to help you get through a period of financial distress.

Who needs a bare bones budget?

Covering only the bare expenses will help you to significantly decrease your outgoings. While it may seem dire, there are a lot of different reasons why you may need to cut back. 

When you experience income loss

Most often, people turn to a restrictive budget when they need to curb spending because they are experiencing some loss of income. During these periods, you may only have the cash to pay for the essentials. For example, when:

• You lose your job.
• You have a pay cut.
• There is a loss of income in your household.

This is why it’s so essential to have an emergency fund. While cutting back is likely necessary when you lose income, having an emergency fund as a cushion will really help take the pressure off when you’re in a money-tight situation.

When you want to save a lot of money fast

That said, there are also times when you may want to switch to a bare bones budget even when you haven’t lost any income. For example, when:

• You want to get out of debt.
• You want to achieve a specific financial goal quickly.

Swapping your regular budget for a minimal one for a few months can definitely help you slash expenses so you can save up a big chunk of money fast.

When you want to be prepared

Even if you’re not ready to cut back completely, it’s still a good idea to create a bare bones budget.

If you create one before you need it (hopefully, you won’t ever need it!), then you’ll be ready to cut your spending right away in the event of a financial emergency.

How to create a bare bones budget

There are only 3 steps needed to get started. Check out this simple list to help you create a budget without excess.

1. Make a list of your necessities

First, start by printing out all your bank statements and credit card statements from the last month. Doing so gives you a look at your current spending—which may be a lot different than you think.

According to Nerd Wallet, 83% of Americans think they overspend. Be diligent! Look carefully and use a highlighter to identify only the essential expenses.

2. Make a list of what you need to cut

Next, see everything else in your statements that isn’t highlighted? That’s what you need to cut back. Yup, it’s about only covering the basics—nothing more.

In addition, take note of any non-essential expenses that are automatically deducted from your account or charged to your credit card—and cancel them.

3. Use a budgeting tool to stay on track

Finally, use a budgeting tool to document your new budget. Having everything organized and written down will help you stay accountable and stick to your budget. You can use a budget planning notebook or an app if you prefer.

Also, it’s a great idea to give yourself a timeframe for how long you expect to use this type of budget. Remember, a bare bones budget is simply a temporary measure; once you’re out of your money-tight situation, you’ll have to reevaluate your spending.

Key considerations

Everyone’s budget will look different because cutting down on spending looks a little different for everyone.

Of course, there are some general rules of thumb to follow. The following payments are usually necessary costs. They are non-negotiable.

Housing

• Mortgage/rent
• Property taxes
• Homeowners association fees

Utilities

• Heat
• Electric bill
• Water
• Air conditioning

To shrink your monthly bills, try to reduce your use of utilities as much as possible.

Food

Particularly, this is a hard one to whittle down. But when you’re lowering expenses, you need to remind yourself to only spend money on essential groceries.

Believe it or not, according to Recycle Track Systems, the U.S. throws away almost 60 million tons of food a year. That’s a lot of waste—and a lot of lost money!

Fortunately, learning about budget meal planning can go a long way in helping you stick to a tight food budget so you can avoid waste. On top of that, remember to check out what coupons are available at your local grocery store to save more money.

Transportation

• Car payment
• Gas
• Parking
• Public transportation

Debt repayments

Don’t forget to include your debt reduction strategy and repayments in your bare bones budget!

While it may seem like this is something you can skip, doing so will just make your pile of debt grow with increasing interest. Plus, continuing to make debt payments will help you maintain a good credit score even during a money-tight situation.

When you’re trying to lower expenses, just focus on the minimum monthly payments. But if you’re adopting a bare bones budget to save money to pay off your credit card debt faster, then you can reallocate the money you save from other expenses to make bigger debt payments.

Phone

• Reduce your phone plan to the cheapest plan possible

Internet

• Same thing here—reduce your internet plan to the cheapest plan possible

Healthcare

• Medications
• Co-pays for appointments
• Over-the-counter treatments

Insurance

• Health
• Auto
• Life/disability
• Renter’s

Certainly, insurance is something you want to keep—even when you have to switch to a bare bones budget. To help you start cutting back, try calling your insurance providers to see if they have any discounts you can use.

Retirement contributions

Your long-term retirement savings might be impacted by your budget, especially when you are trying to lessen your expenses.

If you still have a job

If you are employed, keep on making contributions to your retirement account. You may prefer to hold off on extra contributions to your retirement account for now, depending on your situation.

But if your employer offers matching in a 401k, for example, then keep contributing at least as much as your employer will match.

If you lost your job

If you don’t have a job and you’ve been contributing to your own traditional or Roth IRA outside of your employer, then you may decide to stop making contributions to your retirement account for now.

That’s okay for a few months—above all, you want to avoid dipping into your retirement savings to cover expenses.

Family expenses

• Daycare
• School tuition
• Alimony
• Child support

Personal care

• Toiletries
• Work clothes
• Haircuts as needed for work

Pet care

• Pet food
• Medications
• Vet bills

Expert tip: Consider minimalism to cut down on your budget

Minimalist spending means cutting back on all the expenses you don’t need to cover. Yet, so few of us actually practice this.

When you are sticking to a strict budget, embrace the opportunity to appreciate the value of things rather than merely the cost. Focus your attention on doing things that add true value to your life rather than being expensive.

That may be reading a good book, spending quality time with a loved one, pursuing your creative passions, or even working on your business. 

Bare bones budget example

Here’s an example of a budget that has only the essentials based on a monthly income example of $3,500. It goes along with the categories discussed above.

The example totals $3,500. You can adjust the expense numbers to fit your personal situation. If you find that you have extra money left, don’t spend it. Save instead, pay off debt, or contribute to retirement, depending on your circumstances.

What you shouldn’t spend on

Now you know what’s essential, but here’s what to avoid adding to your expenses.

• TV
• Streaming subscriptions or cable alternatives
• Music subscriptions
• Any other unnecessary memberships or subscriptions (e.g., magazines, newspapers, gym, etc.)
• New clothing
• Non-essential travel
• Non-essential personal care products (e.g., cosmetics, manicures, etc.)
• Restaurants and bars

Sticking to your budget and splurging

If you’re truly in crisis mode and can only cover the bare expenses, then you’ll need to halt all unnecessary spending.

However, if you’re using a bare bones budget to get out of debt or save for a big financial goal (e.g., a down payment on a house or a wedding), then making room for a monthly splurge can actually be a good idea.

Leaving room for treating yourself to one monthly splurge (like a dinner out or a manicure) can give you a tiny bit of relief from the strict rules you’re following.

How do you successfully stick to a bare bones budget?

To stick to a bare bones budget, first work out what your necessary costs are and ensure you can cover them. All other spending (such as luxuries, entertainment, and non-essentials) will need to go on hold.

Sticking to a bare bones budget can be tough but it is very possible to do with intention and focus. If you are struggling to stop spending, here are some tips that you can try for yourself: 

Keep track of your spending

Do you know where your money is going? If the answer is no, you need to start tracking your spending.

A great way to do this is by leveraging a spending journal where you write down what you spend and then review it at the end of each day. There are also plenty of budget templates and tools you can use to do this.

Remove any obvious temptations

Whether it’s your friends asking you to go on a night out or “window shopping” at the mall, you may be tempted to overspend. Removing these temptations will help you stay on track.

Use cash, not your credit cards

If you usually spend money using credit or debit cards, now is the time to stop. By using cash, you can see exactly where your money is going in real time.

What do bare expenses mean?

Your bare expenses are the payments that you need to make in order to live. They include essentials, such as your housing costs (rent or mortgage), food, medicines and your core utilities like water, electricity and internet.

When you are trying to cut back on spending, these are the costs that are unavoidable, so you need to continue to pay them. 

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If you liked learning about how to budget without excess, check out these posts about budgeting next!

• 12 Tips For How To Drastically Cut Expenses To The Bone
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• 10 Of The Best Budget Templates And Tools
• 7 Budgeting Best Practices

Prepare now—don’t wait for an emergency to create a bare bones budget

Even if you don’t need a bare bones budget right now, having one outlined and at the ready is always a good idea. That way, if you’re ever in a money-tight situation, you can relieve a bit of the stress by being prepared to cut expenses fast.

Above all, having a good budget (and sticking to it!) is the key to financial wellness—no matter your current financial situation. You can also discover other creative ways to cut back on your budget!

The post How To Create A Bare Bones Budget appeared first on Clever Girl Finance.

A quick Google search of budgeting methods will show you that there’s no shortage of options out there. There is, however, one particular budgeting method that could work well if you are just getting started with budgeting and more so if you don’t like the idea of a monthly budget. The method we’ll talk about involves creating a paycheck budget.

Budgeting by paycheck can help take some of the overwhelm out of the conventional monthly budget. You’ll get a super clear understanding of the money coming and going from your bank account. You’ll also find out how to avoid overdraft fees once and for all due to more frequent planning.

What is a paycheck budget?

The paycheck budget is a strategy where, rather than budgeting just once a month, you budget each time you get paid.

Because most workers get paid either weekly or biweekly, according to Patriot Software, courtesy of the U.S. Bureau of Labor Statistics, this budgeting approach can be a good way to stay involved with your finances. Especially since it requires you to think about your finances every time you stop by the check cashing place.

When you use the paycheck budget method, you assign each of your expenses to a specific paycheck.

For example, let’s say you get paid on the 1st and the 15th of each month.

If rent is due on the 1st, you can plan to use the paycheck from that pay period. If your cell phone bill is due on the 20th, you can then pay that bill with your second paycheck of the month. You can also leverage your budget to determine how much to save from each paycheck.

Benefits of a paycheck budget

Using a paycheck budget is a great way to get started with money management and begin embracing healthy financial habits.

You know where your money is going

First, paycheck budgeting gives you a clear understanding of where each dollar is going. You probably know roughly how much money you earn and how much you spend each month.

However, budgeting by paycheck really shows you where the money from each paycheck goes.

Overdraft and late fees can be avoided easily

Next, it helps avoid overdraft and late fees. It can also keep you from running out of money before you get paid again. If you know exactly which expenses will come out of each paycheck, you can make sure you aren’t spending more than is actually available to you before your next paycheck.

Many people put expenses on a credit card and then pay it off each month. Which can become problematic when you’re spending money you haven’t actually earned yet. It gets even worse when you spend more on your credit cards than you’ll earn to pay off.

From Generation X to Gen Zers, over half or nearly half have credit card debt with each generation, according to Bankrate. But when you budget by paycheck, you can better avoid the trap of credit card debt.

You can keep track of your money easily

Finally, this budgeting method forces you to check in with your finances on a regular basis. And when you check your budget regularly, it becomes easier to manage.

Keeping track of your money is key for staying on top of your spending and keeping pace with your financial goals.

As you can see, there are several advantages of budgeting by paycheck.

Who is this method right for?

Personal finance is just that: personal. As a result, there’s no single budgeting method that will work for everyone. The best strategy for any one person is the one that they’ll stick to.

That said, the paycheck budget method is ideal for people in a few specific financial situations.

People who are paid more than once per month

Budgeting is a little easier when you’re getting paid monthly. Monthly is simpler because you always know where the money for your bills will be coming from. But for those who are paid more often, there’s a little more legwork that goes into it.

You have to time your expenses just right to make sure you aren’t spending money that hasn’t hit your bank account yet. With the budget-by-paycheck method, you can divvy up all of your expenses to correspond with a specific paycheck.

People who live paycheck to paycheck

If you are living paycheck to paycheck, which is over half of Americans, according to CNBC, the last few days before payday can be painful. You may be scraping by on your last few dollars.

Budgeting by paycheck can help you make a plan for your income to ensure you don’t run out before payday. It might also be what finally helps you to break the paycheck-to-paycheck cycle.

People who are new to budgeting

Traditional budgeting advice would have you plan out your expenses one month at a time. But this doesn’t take into account the fact that many people aren’t paid on the first of the month.

So, if you’re new to budgeting, following this traditional advice may result in spending money you don’t have yet.

A paycheck budget can help you get into the habit of noticing when money comes in and out of your bank account. This, in turn, can help you manage spending money only after you’ve earned it.

While paycheck budgeting is definitely ideal for some individuals, others would probably do better with a different strategy.

For example, if you have an irregular income, it may be a struggle to assign expenses to a specific paycheck when you don’t earn a regular paycheck.

How do you get started with budgeting by paycheck?

Ready to start budgeting by paycheck? Here are the steps to follow:

1. Grab a blank calendar

You can use a printable calendar, a monthly budget planner, or even a digital calendar. You can also use a spreadsheet. Learn how to create your budget calendar here.

Remember: The best budget planner is the one you’ll actually use. So, if you prefer things digital, skip out on buying the pretty-looking agenda and just use your Notes app since you know this is where you’ll look regularly.

Or, if you know you prefer pen and paper, don’t let yourself get distracted by flashy apps.

Instead, get a dedicated notebook to track your budget and keep it in a place that’s easily accessible.

2. Add your paychecks and bills to your calendar

Add all of your paychecks to the appropriate date on the calendar, along with the specific paycheck amount.

Next, add your regular monthly bills to their due date on the calendar. Regular monthly bills include your fixed expenses, such as rent or mortgage, insurance, debt payments, car payments, student loans, etc.

3. Tally up your total expenses

Calculate your monthly variable expenses, such as groceries, eating out, gas, and entertainment. If you aren’t sure how much you normally spend, go through your last few months of bank statements and find an average.

You can also divide your variable spending into multiple expenses. If you normally grocery shop once per week, you can add a grocery spending category to your cash calendar as a weekly expense rather than accounting for the whole month at once.

4. Include savings and sinking funds

Ideally, you’d be putting money aside each month to fund an emergency fund and sinking funds. These are some of the most important budget categories that you don’t want to miss!

While there’s no specific date that you have to fund these, choosing a consistent date can help you stick to your savings habit. You can even use an automatic transfer to make the commitment easier.

5. Assign each expense to a particular paycheck

You can use multiple highlighters to color code your calendar. Highlight each expense in the same color as the paycheck you’ll use to fund it. Keep in mind that you won’t necessarily pay every expense with your most recent paycheck.

Let’s say that you get paid equal amounts on the 1st and the 15th of each month, but most of your bills are due in the first half of the month.

In that case, you’d probably use some of your second paycheck each month to pay bills in the first half of the following month.

Expert tip: Use cash envelopes

Using a combination of the paycheck budget and the cash envelope system is a great way to help keep your spending in check. With the cash envelopes system, you put cash into different envelopes depending on how much you want to spend on each budget category.

For example, you may put $300 in an envelope for groceries and $150 in another for fun money. Note that the cash envelopes system doesn’t usually work for bigger expenses, like mortgage payments, car payments, or student loans. (Unless you pay these expenses in cash!)

Instead, you can keep track of these bigger expenses in a simple budget template.

How do you handle unexpected expenses?

The budget-by-paycheck method is a great way to get intentional about your spending and ensure that your spending aligns with your income.

However, regardless of the budgeting method you choose, there’s no avoiding the risk of coming across unexpected expenses.

Whether you’re paying for unplanned car repairs or a medical bill you didn’t know was coming, these emergencies are practically inevitable.

So, how do you handle these unexpected costs in the paycheck budget method? You can create two new budget categories: An emergency fund and sinking funds.

Protect yourself from unexpected expenses with an emergency fund

First, be sure to set aside money in an emergency fund. If you don’t already have one (preferably with 3-6 months of living expenses), then you can make room in your budget to start setting aside some money each month.

Then, when those small and large emergencies pop up, you can pull from your emergency fund.

Prepare for unexpected spending with sinking funds

Another way to avoid an unplanned expense throwing off your budget is by creating sinking funds. The basic premise of a sinking fund is that you take an expense that comes up irregularly and set aside money for it each month.

For example, think about Christmas on a budget. Rather than paying for all of Christmas with your December budget, you can set aside a small amount of money each month all year long.

You can use sinking funds to save for any expense that only comes around once in a while.

For instance, use it for annual expenses like Christmas, biannual expenses like car insurance, and irregular expenses such as car and home repairs.

Add a buffer to your budget

The final way you can handle unplanned expenses with this method is to include a buffer in your budget.

In other words, allocate a set amount of money as a buffer for each paycheck. If a small emergency pops up, you can use that money to cover the cost. If nothing comes up, you can put that money into your emergency fund.

Best tools for setting up a paycheck budget

There are tools available for just about every budgeting method you can imagine, and a paycheck budget is no exception. Let’s talk about a few tools that might be particularly useful for this type of budget:

A monthly calendar

The entire premise of this budgeting method is assigning expenses to a specific paycheck based on the date they come out of your bank account.

Because of that, a calendar lends itself particularly well to this type of budget. You can use color coding to make this method especially easy to keep track of.

Budget templates

There’s no shortage of the best budget templates and printables available these days. No matter what budgeting method you use, you’re sure to find several free and paid options on the market for your method of choice.

A budgeting app

If you prefer digital tools, a budgeting app might be the right choice for you. There are many apps that lend themselves especially well to the paycheck budgeting method.

You can find them by searching in your phone’s app store, filtered by best reviews. Some great ones include YNAB (You Need a Budget) and the Every Dollar app.

How much of your paycheck should you budget?

You should budget your entire paycheck.

In other words, every dollar of your paycheck should be accounted for! This means keeping track of how much you spend on fixed expenses (like rent), how much you spend on discretionary expenses (like restaurants), and how much you save. Using dedicated budget templates and tools can help you stay on track.

What is the 50-30-20 budget biweekly?

With the 50-30-20 rule or budget, you divide your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for saving. You can combine the 50-30-20 budget AND the paycheck budget by following the 50-30-20 budget biweekly. You’ll divide up your after-tax income every time you get a paycheck.

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• How Much Should You Save From Your Paycheck?
• How To Stop Living Paycheck To Paycheck
• How To Make A Budget Calendar Work For You
• Always Running Out Of Money Before Your Next Paycheck? Do This!

Creating a budget by paycheck may work for you!

The paycheck budgeting method is an easy system to start with. It is also an effective way to be intentional about where your money is going so you can make more progress towards your financial goals.

For anyone who lives paycheck to paycheck or struggles with spending money before you’ve earned it, this is a great strategy to help you get back on track. Be sure to check out our top budget quotes to keep you inspired as you work on your budget!

The post How To Budget By Paycheck: 5 Key Tips For Success appeared first on Clever Girl Finance.

If you don’t feel like you truly have a strong handle on your finances, one possible cause for that is using a budgeting method that doesn’t work. While not everyone needs a to-the-penny balanced budget, some type of budgeting strategy or template is really important if you want to know where your money is going month after month.

The 70-20-10 budget is one of numerous budgeting frameworks out there, and it just might be the tool you’re looking for.

If you’ve attempted to make a budget in the past and “failed” due to budget challenges, maybe it’s time to rethink your plan. You can succeed in budgeting—you just need the right way to do it for you.

What is the 70-20-10 budget?

The 70-20-10 rule is excellent for someone who doesn’t want to watch every cent of spending across thirty-five different categories. It’s a pared-down, simplified version of budgeting.

If you’ve ever looked at a sample budget and thought, “This is just too complicated,” then perhaps this budget will be a good compromise. Maybe you’re someone who wants to know how to manage your money, but you don’t want to be bogged down by micro-management.

The 70-20-10 budget refers to the percentage of your take-home pay that you devote to each of three major categories: spending, saving, and giving. That’s it.

(If you’d like an even more streamlined budget plan, you could check out the 80/20 budget and apply it to your budget instead.)

If you choose this budget, you would allocate 70% of your monthly income to spending, 20% to saving, and 10% to giving. (Debt payoff may be included in or replace the “giving” percentage if that applies to you.)

Let’s break down how this budget could work for your life.

70% of your income is for spending

With this rule, you will live on 70% of your income. More accurately, 70% of your take-home pay, or net income after taxes, not pre-tax income.

So you need to fit all of your necessities in this category, along with any luxuries that cost money.

Once you know your weekly or monthly income, you can do the simple math of calculating how much 70% would be. That’s the figure you need to keep all of your life’s expenses under.

Types of expenses to include in the 70-20-10 budget

Anything you spend money on goes under this category. All budgeting apps and strategies address this, of course.

Here’s a starter list of the most common expenses to include with the 70-20-10 rule:

• Rent/mortgage
• Car expenses and payments
• Insurance premiums
• Utilities (electricity, water, garbage removal)
• Fuel/Transportation
• Groceries
• Child care
• Dining out
• Clothing
• Entertainment
• Student loan payments (minimums)
• Other debt payments (minimums)
• Gifts (unless you keep this exclusively for the 10% Giving category)
• Travel
• Subscriptions or memberships
• Hobbies

Feel free to add any other discretionary spending categories you wish.

Fixed vs. variable expenses

One way to break down your spending category is to look at your fixed and variable expenses.

Fixed expenses

Your fixed expenses are the ones that have a set amount to pay every month. These are the “easy” expenses to calculate because their cost doesn’t change when living month to month. 

You usually can count on your mortgage or rent staying the same every month, for example, unless your landlord has to raise the rent occasionally.)

Examples of fixed expenses include:

• Rent or mortgage payment
• Car payments or car loan
• Insurance premiums
• Membership fees (to professional organizations, gyms, etc.)
• Subscriptions (magazines, trade publications, etc.)
• Child care (this is a fairly fixed amount, though you might add more for an extra babysitting night here and there)
• Utilities (usually variable, but can be fixed if your utility company offers a program that estimates your average monthly cost so you pay a more regular amount)

Variable expenses

Variable expenses are those that can fluctuate depending on circumstances. You may spend more on dining out during the holidays, for example, even if you’re doing Christmas on a budget.

Your utility bills may decrease during more temperate seasons of the year and go up during extreme cold or heat. Variations may be due to your spending choices but sometimes are due to factors outside your control.

Examples of variable expenses include:

• Groceries
• Fuel/Transportation
• Dining out
• Utilities
• Entertainment
• Clothing
• Gifts
• Travel

The key to remember for all of your expenses is to keep the total at or below 70% of your total take-home pay in any given month. If you have any extra leftover, you can decide whether to spend it as fun money or send it to pad your savings or giving category.

20% of your income for saving

The second category is much smaller but no less important than your spending. With this budget, you plan to save 20% of your total income.

It is a great goal to set. American households do seem to prioritize some savings on average, but saving more is never a bad idea.

Although starting with saving 10% of your income as part of the 10% rule is better than nothing, increasing that amount to 20% gives you that much more wiggle room.

Of course, one of the major hurdles many people face in saving money is that they may not know how to save money when their income is low. It’s really tough to save when you’re living paycheck to paycheck.

So don’t beat yourself up if you haven’t been able to put any money aside in the past few years.

However, everyone should aim to save a decent portion of their income. We all need an emergency fund, and to save more long-term (think: retirement). Consider some of these ways to save.

Include an emergency fund as part of your 70-20-10 budget

Although there aren’t many hard-and-fast personal finance “rules,” having an emergency fund is always essential. You need to start with an emergency fund before any other savings. Your emergency fund is that sum of money that you can draw from in case of, well, emergencies.

Having to have your car towed after a breakdown on the highway would be one example. Calling a plumber to fix that leaky faucet, paying for a sudden medical co-pay, or buying a plane ticket to a beloved family member’s funeral may all be emergency situations.

In addition to emergency cash to cover you when one or two unexpected costs come up, you need to build what some call a “full” emergency fund.

For example, you might begin with a small fund of $500 or $1,000 as a first milestone. That’ll provide a bit of peace of mind.

But what if you’re concerned about losing your job? Or both you and your spouse get laid off? You might need money to cover your bills for weeks or months.

A more robust emergency fund is usually 3-6 months’ worth of basic living expenses.

When calculating how much you’d need for 3 or 6 months’ worth of expenses, your budget will come in handy. For this, you want to stick to a bare bones budget: mortgage/rent, transportation to work or job interviews, groceries, and any other non-negotiable expenses.

A note: be sure to keep your emergency fund in an easily accessible account. (Don’t put it into a retirement account where you won’t be able to get the money out for years.) A high-yield savings account is a good option for your basic emergency fund.

Sinking funds (for future expenses)

A different type of savings account to consider in your 70-20-10 budget are what we call sinking funds. These are for the various larger expenses that can crop up from time to time. You don’t always need $50 a month, but you might have to cover an expense of $500 six months from now.

It’s usually not a wise idea to funnel all of your sinking funds into your regular emergency fund, either. That might make it too easy to spend it on the wrong things. You can set up different types of bank accounts at the same bank for different types of sinking funds.

Then, simply set up automatic deposits into each one. Over time, whether it’s $5 a month, $50 a month, or even hundreds a month, that sinking fund will grow. The goal is to have enough money to cover costs you can reasonably expect but can’t always calculate exactly in advance.

Sinking fund examples

• House sinking fund (for regular repairs and updates to your home and appliances)
• Car sinking fund (save for the next car you’ll buy as well as for future auto repairs)
• Self-employment tax sinking fund (freelancers and self-employed people must pay quarterly taxes on their own)
• Wedding sinking fund (for hosting a wedding or the costs of attending future weddings)
• Gift sinking funds (you might save all year for sustainable Christmas gifts, for example)
• Kids’ activity sinking funds (save year-round for those summer camps and club fees, as well as experience gifts for kids)

Sinking funds may seem like a lot to handle after filling up your emergency fund, but they’re worth the effort. They’ll make it less likely you’ll dip into your emergency fund because you’ve prepared for these types of expenses. Plus, the expenses that happen “every so often” won’t come as such a surprise.

Retirement savings

Within the 70-20-10 budget, you can also put some of your 20% into retirement funds. Once you’ve set up your emergency fund and a few sinking funds, get to work on retirement.

Retirement is a huge goal to prepare for, but the sooner you can start learning tips for retirement planning, the better off you’ll be. Time is one of the most powerful tools in retirement savings. You want to give your investments time to grow through compound interest and stock market returns.

401(k)

The 401(k), 403(b), and 457(b) are some of the most common retirement accounts. These are excellent retirement savings tools, but you must have the option of one through your employer.

401(k)s offer the opportunity to save for retirement before taxes. The money goes directly from your paycheck into an investment account, reducing your taxable income. Some employers even offer 401k matching for your contributions, which is basically free money!

Keep in mind that these accounts are tax-deferred, not tax-free. So you save on taxable income now, but when you retire and begin withdrawing the money, you’ll pay taxes then.

In addition, there are 401k alternatives, and we’ll talk about some of the best in the next section.

IRA and Roth IRA

Along with a 401(k) or similar employer-sponsored plan, many people in the U.S. can save in an Individual Retirement Account (IRA). There are traditional IRAs, in which you can save yearly for tax-deductible contributions.

Roth IRAs are another option, which works similarly. The difference between traditional and Roth IRAs is that the Roth IRA is taxed upon contribution, but you can withdraw the money tax-free once you retire.

Other types of IRAs exist, including the SEP-IRA, for those of us who are self-employed.

For Roth and traditional IRAs, the government limits how much you can contribute per year. In 2024, the maximum is $7,000, or if you’re 50 or older, you can contribute up to $8,000, according to the IRS.

College savings for kids

Another major savings “bucket” to keep in mind when starting a family is that you may want to start a college account for your children. Remember that paying for college is generally not mandatory for parents, but as a parent, you probably want to help your kids out if you can.

After covering all of your expenses and other essential savings (and don’t neglect retirement), you can move on to college savings. Help your kids get a great education and also learn how to avoid student loans.

As with any type of savings, when it comes to college planning, the earlier you begin, the better. That doesn’t mean you shouldn’t save anything if your child is already in high school, but starting when they’re younger is best.

Custodial accounts and 529 plans are two of the best options for parents of kids who may someday attend college.

Custodial accounts

One strategy parents can use for college savings is a custodial account. It’s an investment account that a parent or other adult can start on behalf of a child in their life. The child will take over the account at a certain age—usually either 18 or 21.

You should read all the details of a custodial account before opening one for your child. There may be gift taxes involved, and the child may also need to pay taxes on earnings eventually. But one great thing about custodial accounts is that they don’t need to be used only for college.

A custodial account can be great if you want to keep options open for your child.

In case they decide to pursue an alternate path like the military or opening their own business right after high school, this might be more useful than a 529 plan.

529 plans

A 529 plan is often considered the top investment vehicle for parents to help send their kids to college. If you’re a parent, you can open a 529 account for your child very early and let the funds grow until they’re ready to hit the campus.

There are great tax advantages to 529 plans. The earnings in the account are federal income tax-free as long as you only withdraw the money for eligible educational expenses.

The longer your money is invested, the better the returns you can earn on your money, meaning your savings will stretch farther.

So, a part of your 70-20-10 budget can involve saving for your kid’s college education. Remember, in this budget, you’re contributing from the 20% bucket to the college fund. You might only use 5% of your income here, but stick to that 20% maximum.

Stock investments

Investing in the stock market is another avenue for you to start building wealth. It’s best to focus on other steps first, such as your emergency fund and investing in an employer-sponsored retirement account. But investing on your own in the stock market is another option if you’re at that point.

You can try your hand at more stock investing by signing up with a robo-advisor, which picks your bundle of stocks to buy based on the information you give them. You can check out the best stock research websites to invest money in the stock market.

Another means of getting some money into the stock market is with index funds. Investing with index funds is a way of investing in a basket of stocks or bonds that are meant to perform similarly to the overall stock market.

In other words, you invest in the fund to hold a piece of multiple companies, hoping to earn good returns on your money because you have a variety of companies’ stock.

As you prepare to dive deeper into the work of stock market investing, check out these investment terms you should understand!

Real estate investments

If investing in real estate sounds intimidating, it doesn’t have to be that way.

Although real estate investing for beginners can include buying a property to rent out for income, people can now invest in real estate in smaller ways.

Real estate appeals to some investors because, unlike the stock market, real estate is a tangible asset. It’s an actual piece of property that will theoretically always have some value.

As you begin with real estate, you might put some of your saved money into a real estate investment trust or REIT. It’s quite similar to investing in the stock market but in companies specifically working in real estate. The process for you as an investor is much like that of buying index funds, which is easier than buying a property and becoming a landlord.

Crowdfunding is another easy way to dip your toes into real estate syndication investments with your 70-20-10 budget.

Of course, you may be ready to pursue buying physical real estate, which can be a good option as well. Be sure to do plenty of research, as it’s not a truly passive form of income and not for everybody.

However, owning property can be a lucrative way to start wealth accumulation over time.

10% of your income is for debt payoff or giving

In the 70-20-10 budget, the final 10% of your money is earmarked for extra debt payoff. Or you may choose to use this 10% for giving. It may mean donations to charity or gifts to loved ones for weddings, graduations, and the like.

Debt payoff

Depending on your finances, you could include debt repayments within this 10% category.

However, this doesn’t mean you can only spend less than 10% of your income on debt. You might remember that student loans and other debts were included in the 70% expenses category.

Your student loans and other debts are obligations, so you want to include the minimum required payments in your spending.

In addition, if the minimum payments aren’t getting you out of debt fast enough, you can send extra money to speed up that process.

You can choose how to calculate this final 10% of your income. If you are facing a lot of debt, you could focus on how to pay off credit cards fast rather than giving. In particular, if your debt comes with a high interest rate, it’s a good idea to pay it off quickly.

If you’ve carried a lot of debt, you probably have experienced some levels of debt stress. Figuring out the right game plan for you with the 70 20 10 rule can help you get on the path to living debt free.

Debt snowball method

One popular method for debt payoff is known as the “debt snowball worksheet.” Popularized by many a personal finance influencer, the debt snowball means you pay off your debts in order, from smallest to largest.

The magic of the debt snowball is that you start with the smallest of all your debts, no matter what the interest rate is. That may mean paying off a $75 parking ticket first. That may be small, but that gives you a feeling of accomplishment.

The snowball is all about emotional wins. When you have a large amount of debt, it can feel suffocating. You might think you’ll never break free. But each time you pay off a debt, you can be proud of yourself, gain motivation for saving money, and face the next debt.

It takes time, but those little wins can fuel your drive to keep going as the debts grow larger.

Debt avalanche method

Some people praise the debt avalanche vs snowball method of debt payoff. It’s similar to the debt snowball, except that it focuses on the interest rate of each debt versus the amount of each debt.

Your interest rate on a debt is how much you’re being charged by the lender to borrow their money. The higher the interest rate, the more you’ll pay overall.

With the debt avalanche, you want to look at all of your debts and check the interest rate on each one. Then, focus any extra money you can on paying off the highest-interest debt first. For many people, this is credit card debt.

With the debt avalanche, you should end up paying less overall.

However, you might grow discouraged if it takes a long time to pay off your highest-interest debt. Which debt reduction strategy to use can depend on your personality and what method will help you to succeed.

Keep in mind, when using the 70-20-10 budget, your minimum debt payments come out of your spending category. The extra 10% category for debt involves extra payments to get out of debt quickly.

Giving or sharing

A part of your final 10% category can go towards giving to something meaningful to you. It can be a formal type of giving, with regular monthly amounts to the same organization, or you might like to vary your giving monthly.

Religious tithing or giving

Many people make giving to their house of worship a priority. Some religious traditions call this a “tithe” (which simply means a tenth of your money). But whether you give a full 10% to one church or religious organization is really up to you.

Donating to charitable causes

Another part of your giving may be in the form of donations to charities or nonprofit organizations.

You can choose one with a mission that resonates with you, whether that’s helping victims of domestic violence, digging wells in Kenya, feeding the hungry in your hometown, or one of the hundreds of other causes.

Advantages

So, what are the main benefits of using this budget to learn how to manage your money? Let’s discuss some of the primary reasons you might like this budgeting method.

The 70-20-10 budget is simple to use

The 70-20-10 budget is pretty simple to understand and use. Keeping only three basic categories can make budgeting feel less like a chore and more doable, especially if you hate budgets.

Spending, saving, and giving are generally the three main categories people talk about when discussing why personal finance is important. Sure, there are plenty of ways to divide up those areas, but starting from those broad sections might make budgeting feel manageable to you.

Less restrictive than other budgets

A budget like this might work for you because it can feel less restrictive than other budgets. Other budgeting tools or programs may require you to make thirty different categories for your money and keep track of every single penny you spend.

This budget gives you a general framework that can help you with organized finances. But it gives you a lot of freedom within the framework. Spending 70% of your income, you can divide up the spending categories any way you like.

Disadvantages

As with most things, the 70-20-10 budget might not work for everyone. Here are a couple of negative aspects of this kind of budget strategy.

Some prefer a more detailed budget

You may have read the above section and thought the 70-20-10 budget is just too simple for you. You may prefer breaking down all of your income and spending in a much more detailed and specific manner.

If you think your personality fits better with stricter, detailed planning, then try a more complex budgeting template. The goal here is to create better budgeting with your money, not to fit yourself into a mold that isn’t right for you.

Not everyone can live on 70% of their income

Now, here’s a tough truth about finance: for some of us, 70% of our income isn’t enough to live on. If your income isn’t at a level that allows you to pay the bills at 70%, then this budgeting rule won’t work.

You could also try to adjust this plan slightly if income is tight. Perhaps an 80-10-10 budget would be a good alternative (spend 80%, save 10%, give 10%).

The 70-20-10 budget can be good for many people, but when you’re struggling with bills piling up, you likely won’t be able to save 20% or give 10%. And that’s okay.

70 20 10 Budget example

Knowing how this budget works and understanding the pros and cons is great. But maybe you want to see what this budget looks like in a real-life scenario. Here’s an example:

Let’s say your income is $5,000 a month after taxes. By this rule, $3,500, 70% of your income, would be for all expenses. Then 20%, or $1,000, is for saving. Last, $500, or 10%, is for giving or debt payoff.

So your budget might look something like this:

Essentials: $3,500

• Housing cost $1700
• Utilities $200
• Insurance $200
• Transportation and car payment $500
• Groceries $600
• Subscriptions $50
• Minimum debt payments $200
• Fun money $50

Saving: $1,000

• Emergency fund $300
• IRA $300
• Saving for child’s college $200
• Sinking fund for travel $200

Giving: $500

• Giving to religious organizations $250
• Giving to a charity $250

You can use whatever budget categories make the most sense for your income and lifestyle. But this example gives you an idea of what this rule might look like.

Expert tip: Calculate your income before setting up your 70-20-10 budget

A good first step to take before breaking down all of your spending, saving, and giving? Figure out how much money you make in after-tax income. You can look at pay stubs if you’re not sure of the precise amount.

If you’re practicing budgeting for couples, be sure to factor in a spouse or partner’s income if you share the household income and expenses. If your income is variable—for example, if you take on freelance gigs or work in an unpredictable field—make your best estimate for an average monthly income. You might err on the low side of that income range just to be on the safe side.

How is the 70-20-10 rule similar to 70-10-10-10 rule?

The 70-10-10-10 rule for money is very similar to the the 70-20-10 rule. But 70% of your income is for expenses, and the other three 10 percents (10-10-10) are for various categories, including giving, investing, and saving. You may choose to focus on different things in each of your 10% categories, including an emergency fund, retirement accounts, etc.

So, as you can see, this rule is very similar to the 70-20-10 rule. It’s just that the way you break up the percentage numbers is slightly different.

Articles related to budgeting methods

If you learned more about percentage budgeting from this article, read these next!

• How To Use Budget Categories
• Sinking Funds: Why You Need Them. How To Set Up Yours!
• 21 Sinking Fund Categories to Consider In Your Budget
• The 50-30-20 Rule: How It Works + A 50 30 20 Budget Template
• 10% Rule: Is Saving 10% Enough?

Give the 70-20-10 budget a try!

By now, you probably have a good idea of whether you like this 70-20-10 budget. It’s a fairly simple and straightforward method of budgeting. Consider the type of budgets you may have tried in the past, and think about your financial goals and examples of financial goals as you decide.

Going through your current financial situation can help you to create a financial planning process. Your money is too important to leave up to chance, so give it a shot and try some new budgeting ideas.

You might also find a different approach to managing your money. There are several other different budget rule ideas to try out, including the following:

• 80/20 budget
• 60-30-10 rule
• 60-20-20 rule
• 50-30-20 budget
• 30-30-30-10 budget

Learn how to create a budget that’s best for you with our completely free budgeting course! Remember that budgets are personal, and even if it takes some time to find the right one, it will be worth it when your finances are in good shape and you feel more in control of your money.

The post What Is The 70-20-10 Budget? appeared first on Clever Girl Finance.

For many people, budgeting is just not any fun, and it means limits or lack of or even punishment. But if you choose the right budgeting method, you can be financially successful, and budgeting doesn’t have to be such a chore. Find out about the best budgeting methods so you can decide which one to use!

I personally prefer the word “plan” to the word “budget” because it doesn’t sound so constraining. But a budget broken out into budget categories in some form is really important for your financial success.

Ever heard the saying from Benjamin Franklin, “Failing to plan is like planning to fail”? Well, if you don’t plan, you can’t win and your budget is there to help you win.

That said, the process of budgeting doesn’t have to be difficult or complicated, either.

There are several advantages and disadvantages of budgeting, but it’s generally a positive thing. You just need to create a system that works for you. And this means the right budgeting method.

In this article, you’ll learn all about the various types of budgets and how to win with your money! But first, let’s discuss why understanding the different budgeting methods even matters.

Why it’s important to understand budget methods

There are some pretty solid reasons why you should understand and be using some or one of the methods of budgeting. It helps keep your spending in check, tracks your expenses, and teaches you to control your money — and not have it control you!

It’s also the first step in helping you build wealth.

Having a budget allows you to enjoy life without the stress of how to pay for it later. Because “later” rarely comes. Paying for things in the present instead of the future allows you to truly enjoy yourself and live the life you want.

I was able to save $100,000 in just 3 years by making a budget and sticking to it. And you can find out how to save 100K, too! Imagine what you can accomplish with a little planning.

People will often allow their emotions to cloud their judgment when it comes to planning their finances.

However, if you look at your money objectively for what it really is, a tool, then it’s easier to make your plans! Once you decide what your priorities are, the different budgeting methods you choose should reflect them.

4 Different budgeting methods to consider

The method you choose is entirely up to you; the most important part is picking a style that works for your life. Trust me, even if you currently hate budgeting and need a better budgeting system, there’s a style out there for you!

Finding what works for you is the most important step because not everyone’s brain processes information the same. You may like one of these methods or a hybrid of a couple of them. You may choose to start budgeting weekly or prefer a biweekly budget or monthly.

The most important thing is just to do it. If one doesn’t work, try different types of budgeting methods. That said, below are four different ideas that you can try.

1. Envelope or cash system

The cash-based budgeting system is simple. You subtract your expenses from your income and then put the amount of each expense into its own envelope. These envelopes are your categories.

Using cash may also make it easier to stick to your budget. Studies have shown that you spend less when using cash. But you don’t have to use cash for all of your bills when using the envelope system.

You can set up the money for your big bills using a digital envelope system. Then, track them through a budget worksheet or an app. Then, put actual cash for your smaller expenses or day-to-day transactions in actual physical envelopes.

The cash envelope system works best for categories which you can use cash for on a daily basis. So, things like clothes, food, eating out, fun, kids’ expenses, etc. Do not make it overly complicated, or it will be hard to follow and stick to.

Learn more about getting started with the cash envelope method. And be sure to check out our reviews of the best cash envelope wallet options.

2. Percentage breakouts

Another way to examine your budget is to break down your household income into percentages. Once you do this, you can organize your spending and savings accordingly where you allocate percentages to your:

• Needs
• Wants
• Savings and/or debt.

Keep in mind that the percentage allocations in your budget can change and that’s ok. Remember this is YOUR budget, and you can choose to spend less on one category to put more in another, like savings or debt repayment if needed.

So, for example, you can select a 35/30/35 breakout, a 35/35/30 breakout, or even a 25/25/50 breakout. The goal is to set percentage breakouts that make sense for you.

Just be mindful of how much of your income you spend on housing alone. A good rule of thumb is to keep your housing costs to less than 30% of your income.

Otherwise, you won’t be able to put as much money towards your other goals. Things like saving and investing or becoming debt-free.

It’s helpful to maintain a budget worksheet for this method, too. Using one of the best budget templates or a worksheet is helpful to see where your money is going. It can help you create your budget easily from month to month.

Here are some common percentage budgets you can try:

70-20-10 budget

The 70-20-10 budget method helps you break your income down as follows: 70% to your expenses, 20% for savings, and 10% to pay off debt (or for charitable donations).

Included in your expenses are essentials like groceries, personal care, and housing costs, but also non-essentials like gifts for weddings or fun money. Then you save 20% towards your goals, including your retirement investing. Last, you’ll pay off any credit card debt or personal loans and give to others with the remaining 10%.

50-30-20 budget

The 50-30-20 rule is fairly straightforward. You spend no more than 50% of your income toward your needs and essentials (things like housing expenses, rent payments, home repairs, transportation costs and car payments, your food budget and groceries, etc.) It also includes debt repayment.

Next, no more than 30% of your income goes toward wants and non-essentials (cable, entertainment, subscriptions, vacations, presents for an anniversary or birthday, etc.)

Finally, at least 20% of your income goes toward savings (your retirement account, emergency fund or rainy day fund, health savings account, saving for college tuition, etc.)

It’s one of the easiest methods of budgeting because it works for a variety of incomes and allows you to save and spend freely.

60-30-10 budget

The 60-30-10 rule is a very unique budgeting method. It works best if you have either a very high income, low expenses, or both. 

With this approach, 60% of your money goes toward savings, debt payoff, and investments. Then, 30% is budgeted for your essential costs, like your mortgage, renters insurance, property taxes, school supplies, food, etc. Last, 10% is left over for whatever you want to purchase, like birthday gifts for friends, dinners out at restaurants, etc.

Even if you can’t use the 60-30-10 budget yet, you can always use a percentage method that allows you to save more. Maybe try for 30 or 40% savings to start, and work up to saving more over time.

80-20 budget

The 80-20 budget is a simple approach that can be very effective. 20% of your money is for your savings goals. The other 80% is for your essentials and discretionary spending. 

So you would budget 20% of your wages towards your emergency fund, investing, and other goals. Meanwhile, you divide the rest for your expenses and anything else you want or need to buy.

For example, essentials like rent, homeowners insurance, groceries, life insurance, internet, etc., are paid for from the 80%, as well as discretionary spending like Netflix and movies, tickets for events like a concert, or gifts for birthdays.

30-30-30-10 budget

Another common percentage is the 30-30-30-10 budget. It’s a method that makes a lot of sense if you want to be careful about how much money you spend in important categories.

With this approach, you spend 30% on your housing costs. Another 30% goes towards your savings goals, like retirement and paying off any debt you have.

In addition, another 30% pays for your other essential expenses like internet and groceries. Last, the final 10% is for discretionary spending.

A budget like this means you’ll be careful that your housing costs don’t get too high, which can be helpful, and you’ll save a significant amount.

3. The reverse budgeting approach

As the name implies, reverse budgeting is the opposite of most methods. With most budgets, you subtract your expenses from your monthly income, but the reverse budget is different. It is also known as the “pay yourself first” method.

In this method of budgeting, you focus on savings and financial goals, such as saving a certain amount of money each month, in addition to paying your essential bills, like mortgage payments and utilities.

Then, as long as you meet your monthly goals and pay your bills without exceeding your income, you can do what you like with the money leftover. Reverse budgeting can be one of the best types of budgeting methods because it’s easy, and you don’t have to overthink your money goals too much.

4. Zero-based budgeting

Another form of a budget is the zero-based budgeting example. Zero-based budgeting is the method that Dave Ramsey advocates using. Basically, a zero-based budget is planning for every single dollar in your budget.

So, instead of having $X amount left over at the end of the month, you have $0 left (on paper anyway). When you are planning out your budget, you account for everything you can think of in the budget so that every dollar has a purpose.

You won’t really have zero dollars at the end of the month because you have accounted for different savings funds in the budget. The method is effective because it creates intentionality with every dollar so that what is “left” doesn’t disappear every month.

So no matter what you spend your money on, from essentials like health insurance and debt payments to discretionary spending like going to a concert or money for a hobby, you plan it in advance with the exact amount of money you need.

Budgeting using a spreadsheet vs. an app: Which is best?

Some people love an organized chart for their money — they don’t have to worry about bank security or what’s happening with their personal information. And using a budget spreadsheet allows them to get really close to their numbers.

Do you like this approach but are worried about being able to access it when you’re not home? Google Drive is free and makes it easy for you to upload your budget worksheet for easy access on your mobile devices.

Apps, on the other hand, can make it really simple to budget, especially if you can connect your bank accounts to them so your transactions can be tracked automatically. These days, most apps have extra levels of security.

But sometimes, there can be delays in transaction updates. And apps are not always as intuitive when it comes to categorizing transactions, which will require you to spend some time setting things up.

That aside, for the most part, all you’ll really need to do once things are set up is check in frequently. It will help you ensure your transactions are tracked correctly. You can also set up alerts to keep you on top of your budget.

Whether you choose a budget worksheet or an app, you can set up your budget to be reflective of any of the above methods. Be sure to check out our example of a budget.

6 Tips for succeeding with your chosen budgeting method

Budgeting doesn’t have to be scary and overwhelming. Once you get the hang of doing it, it gets easier and easier every month to have organized finances. Following these simple steps will help you streamline the process and actually stick to your budget.

1. Call it something fun

Call your budget something that you like and that motivates you to keep up with it. Who says it has to be called a budget?

Give it a nickname and a personality. The word budget is boring anyway!

2. Create a budget in advance of each month

Creating a budget in advance of each month means you kick off the next month with a plan, and you aren’t scrambling to figure out what to do. After all, new month new goals, right?

Plan to create your budget a few days before the month starts. You’ll have time to lay things out and figure out what your finances will look like in the upcoming month.

Once you get in the habit of creating a budget, you will even be able to plan out your budget for several months at a time.

3. Don’t assume every month will be the same

Every single month should be planned for separately. No two months will be exactly the same financially, so you want to prepare in advance for things like one-time bills or expenses, travel plans, events, etc. So, creating a new budget specific for each month is essential.

Similarly, budgeting for life-changing events requires extra attention and a budget review. Whether it’s a new baby or you’ve paid off debt, sometimes you need to take a hard look at your monthly budget and accommodate those changes as needed.

4. Create your budget based on your projected income for that month

If you get paid one time a month, twice a month, or every two weeks, base your budget on that projected income so you know exactly how much you have to budget.

Remember that if you get paid every two weeks, there will be a month when you get three paychecks. So plan accordingly.

On the other hand, if you’re budgeting with an irregular income, you may have some challenges getting it right at first. You’ll have to be even more diligent with tracking your spending and estimating your income, but it can be done!

5. Pay your expenses before splurging

Paying expenses first means paying for your essentials, debt, and goals (savings and investments) first before you do any splurging or miscellaneous spending.

The last thing you want is to find that you have overspent on what isn’t necessary and don’t have a way to pay your bills.

However, that being said, it’s okay to splurge and have some fun money. Just make sure you are building your splurges into your budget so you can enjoy them guilt-free.

6. Track your transactions

Tracking your transactions allows you to make sure you stay within your budget and keeps you conscious of your spending habits. You can track your transactions in a spending journal, spreadsheet, or with an automated app or online tool.

If you are just getting the hang of budgeting, it’s a good idea to track your transactions and check in with your budget every day. It will only take a few minutes, and it will help you stay on top of your finances. Plus, you’ll be building up one of the essential money habits of checking in on your finances frequently.

Expert tip: Budgets can change your life for the better

Budgeting may not seem like a lot of fun, but if you find the right method, it can really help your financial wellness. If it seems difficult, try out another method until you create a system that makes sense for you.

And remember that you aren’t budgeting for no reason, you are doing it so you can build a better future for yourself.

Budgeting ensures you can pay bills, pay off debt, and invest money. Remind yourself of how budgeting helps you if you feel like quitting, and don’t give up!

What are the most common budgeting methods?

The cash envelope system, percentage budgets (e.g., the 50/30/20), reverse budgets, and zero-based budgets are some of the most common budgeting methods. They are all different from each other. So the chances are you’ll find one that is right for your lifestyle, and it’s important to find one that works for you.

However, if you don’t want to keep searching for another method, you can create a hybrid of different budgeting methods to come up your own unique budget!

Which budgeting method should I try first?

If you want to know which budgeting method to try first, try out a percentage one like the 50-30-20 rule. It will give you a good starting place with your finances. Then, you can change the percentages as needed depending on your lifestyle and goals.

Keep in mind that there are several other budgeting methods you can try out, too. For example, the reverse budget or the zero-base budgeting method.

What are 5 budgeting methods?

5 budgeting methods that are likely to work for most people are the 50-30-20 budget, reverse budgeting, the 70-20-10 budget, zero-based budgeting, and the envelope system. While there are other types of budgeting methods, these five are likely to be easy to implement for the majority of incomes.

There are plenty of ways to plan your money to make the most of it. As long as you use a method that allows you to pay your expenses and save for the future, you can’t go wrong.

Articles related to budgeting methods

The best types of budget are the ones that work for you! If you enjoyed this article, check out these other great articles on budgeting methods.

• How To Use Use Budget Categories
• How Does The 30-30-30-10 Budget Work?
• Budget Not Working? Here Are 5 Tips For Better Budgeting!
• 10% Rule: Is Saving 10% Enough?
• How To Use The Cash Envelope System To Master Your Budget

Leverage these methods of budgeting today!

The budgeting method you choose can help you succeed financially. If you slip, brush yourself off and get back on track. Take the lessons you learned about budgeting from the previous month and apply them to the next.

If you find that the method you want to use isn’t working, you can adjust it to suit your preference or try an entirely new method. No matter what, keep trying until you find the right way to budget your money and reach your financial goals.

The post How To Budget: The 4 Best Budgeting Methods To Try! appeared first on Clever Girl Finance.

Like many, you might shudder at the word budget, or perhaps it sounds too boring or challenging to figure out. But the 50-30-20 rule and the 50 30 20 budget template prove it doesn’t have to be difficult. If you’re looking to simplify your budgeting process or are new to budgeting, then this might be the perfect match!

Using budgeting best practices means planning out exactly how you’ll use your money, and this can be tailored to suit your specific lifestyle and situation with the 50-30-20 rule. This particular budget involves three easy steps that will help you prioritize your monthly financial commitments.

The 50-30-20 rule is comprehensive and covers all bases. And don’t worry if math isn’t your thing because we’ve included 50 30 20 budget spreadsheet ideas to help you stay on top of your budgeting strategies.

That said, let’s take a close look at this budgeting rule, including what it is and how it works.

In addition, we’ll include calculators so you can jump right in and get started immediately.

What is the 50-30-20 budget?

In its simplest form, the 50-30-20 budget rule divides your after-tax income into three distinct buckets, which are:

• 50% to needs

• 30% to wants

• 20% to savings

A plan like this helps simplify finances and is also easy to follow.

Who invented the 50-30-20 budget?

U.S. Senator, Elizabeth Warren, came up with the 50-30-20 budget. In a book called All Your Worth: The Ultimate Lifetime Money Plan, Elizabeth Warren and Amelia Warren Tyagi described this simple way to budget.

And not surprisingly, it has stuck. People love how easy it is to understand and follow!

Why this rule works

You might be wondering why this budget works and how it will impact your life and financial plan. There are a few reasons it can be great for your finances.

Simplicity

Firstly, the budget is really simple. So if you’re not into details or if you’re just starting out, this budget is fail-safe and easy to implement.

You only focus on three buckets – needs, wants, and savings which are pretty easy to figure out.

Every dollar has a purpose

Secondly, it helps you account for every dollar.

You start off with your after-tax income, which represents 100% of what you have to work with, and then you work out the different spending groups from there.

Financial goals

Lastly, the 50-30-20 rule can help you stay focused on your financial goals and save up for large expenses such as a house or car.

Alternatively, it can also help you create a debt reduction strategy if that’s one of your initial goals.

Percentages for your budget

The 50-30-20 budget is divided into three parts. 50% for needs, 30% for wants, and also 20% for savings. And remember, you can always use a 50 30 20 calculator or even a 50 30 20 budget template to create yours.

Category 1: 50% needs

The 50% needs category is for all your monthly essentials. Essentials include things you simply cannot live without.

For instance, rent or mortgage payments, healthcare, groceries, car expenses and payments, utilities, and also debt payments.

So as you can see, when budgeting for needs, you only include the necessities you need to survive. It would not include entertainment, take-out, or fine dining.

How to save to stay within the 50% rule

You should be able to comfortably meet your needs with 50% of your monthly income after tax. If you’re spending more than this, you may want to re-evaluate.

Are you paying too much for rent? Are you spending more on transport than you can afford?

Do you spend a large chunk of money on weekday lunches? These are all good questions to ask yourself.

Whatever the case, you can make immediate changes to your spending and also improve your budget with the 50-30-20 rule.

For instance, consider moving to a more affordable home or using public transport to keep costs down. Additionally, you can use cold lunch ideas and make your food at home to bring to the office.

Category 2: 30% wants

Wants are all the “nice to haves” that you spend money on with the 50-30-20 budget. These are items you definitely don’t need, but perhaps they are fun, or they add to your life in a positive way. And that’s OK!

The aim is to keep a detailed budgeting plan so your spending habits and fun money don’t get out of control!

The list of wants is endless and also differs from person to person, depending on your lifestyle.

For example, your personal list might include going out to the movies, eating in restaurants, buying new electronic gadgets, buying a pre-owned designer handbag, or tickets to a big game.

Another person’s wants might include cable TV or a Netflix subscription, going to concerts, and paying for gym memberships.

Consider alternatives to large expenses

Remember: there are many good substitutes for wants that cost little to nothing.

For example, you might want to buy the latest iPhone but can’t afford it. Instead, buy an earlier version, and you’ll still get the same benefits.

Alternatively, fitness fanatics who can’t justify the cost of signing up for the gym could work out at home instead.

There is almost always a cheaper alternative available when you’re looking to purchase an item. But feel free to balance your needs vs wants so you still enjoy some of these activities from time to time.

Wants may sometimes include premium experiences that are beyond reach financially. Decide what you can afford using the 50-30-20 rule.

For example, someone may want a new BMW when they can easily have a nicely equipped Toyota that would cost much less.

Be mindful of your wants, as it can be easy to justify spending if you really want something. This idea is tricky to master.

Category 3: 20% savings

Arguably the most important category in the 50-30-20 budget is savings, as this can determine your future. Savings, in this case, refers to both savings and investments.

Savings can take many forms ranging from your emergency cash to your savings account. It can also include any money market investments you have.

Keep in mind that investments refer to any money you have set aside to generate income. It can include investing in the stock market, purchasing real estate, or setting up your retirement accounts.

Priorities for saving

Your top priority should be your emergency fund. It is important to have 3 to 6 months’ worth of living expenses saved in your emergency fund.

Beyond that, focus on your retirement savings. These can include putting money into your company-sponsored 401(K) plan or an IRA. You might ask yourself, “Do I need a financial advisor?” and you can consider hiring one to help you set this up.

How to use the 50-30-20 rule to create your budget

The 50-30-20 budget rule is very simple, and it only has a couple of steps to get started. Here are some tips to make sure the budget works well for you.

Know what your income is

To get started, you need to figure out your after-tax income.

After-tax income is simply the amount of money you have left over after taxes are paid. These taxes include federal and state, in addition to Medicare costs, and don’t forget about social security.

Note: Don’t be confused by your gross income, which is the salary you earn before tax deductions have come out. We’re looking purely at how much money you have left in your bank account to divide it into your three main categories.

If you want a quick and easy way to figure out your take-home pay, simply look at your paycheck stubs.

If you run your own business or are starting a side business, you’ll still calculate your after-tax income. All you have to do is take your gross income and subtract your business expenses and also any state and federal taxes.

Split your income into the three categories

Once you’ve figured out your after-tax income, the fun begins. It’s time to split your income into the three spending groups.

You can do this by creating your own budget or by using the 50 30 20 budget template.

And then you’re all set! All you have to do is keep track of your money and also make sure you stick to the budget.

A quick note on paying down debt

Do you have credit card debt, a personal loan balance, or perhaps student loans to pay back? Debt payments fall across both your needs and your savings categories with the 50-30-20 rule.

Why? The minimum payment you owe on your outstanding debt is a need in that you must pay it back and also pay it on time each month.

But only paying back the minimum amount is a slow and expensive way to tackle your debt.

Instead, we recommend contributing to your savings so you save money to pay off your debt faster and start living debt free.

The saved money can go towards the principal, effectively saving you money in paying future interest payments down the road.

Expert tip: Customize your percentages

While it’s important to stay close to the percentages of the 50-30-20 rule, it doesn’t have to be exact for it to work.

For example, if you actually spend 53% of what you make on necessities, this budget will still work relatively well for you.

On the other hand, if you find that your percentages are very different, you may want to consider another percentage budget that will work better for your income and lifestyle.

Examples include the 80/20 budget, the 60 20 20 rule, the 70-20-10 budget, and the 30-30-30-10 budget!

A 50 30 20 budget template you can use

If you haven’t already set up your budget, this 50 30 20 budget template is easy to use. Simply add your own budgeting amounts.

Below is an example with possible amounts included.

Total net income per month: $5000

As you can see, you can add whatever amounts you want to this 50 30 20 budget template and then use the percentages listed to create your own version of this budget.

You can also add different budget categories if needed, but this works well as an example.

Additionally, here is an actual budget worksheet to download. You can lay it out based on the 50-30-20 split discussed. Just click the image below!

DIY 50 30 20 budget spreadsheet

Another option is to set up your own 50 30 20 budget spreadsheet.

If you’re great with Excel or Google Sheets, you’ll enter your post-tax income into a single cell and set up calculations to convert this into corresponding 50%, 30%, and 20% categories.

50 30 20 calculators

Figuring out your budget doesn’t have to be difficult.

Here are some examples of a 50 30 20 calculator.

Banzai calculator

The Banzai calculator will ask you to enter your post-tax income, and it does the rest for you!

You’ll easily see how much to allocate to each of the three categories for the 50-30-20 budget.

Credit Karma’s budget calculator

This option from Credit Karma is also helpful. It doesn’t calculate percentages, but rather, offers an overall picture of your budget.

Simply enter your income, along with your living expenses, other costs, etc. You will be able to easily see how much you have leftover each month and your amounts for spending, investing, and more.

Money Fit calculator

The Money Fit 50/30/20 budget tool is also a great resource.

It includes category ideas to help you see what you spend money on, and you can change the percentages to suit your needs.

Does the 50-30-20 rule apply to every budget?

The 50-30-20 rule does not apply to every budget, rather, it is based on your income and expenses. It can work very well for people whose expenses are approximately half their income.

However, if you find that your expenses take a larger portion of your income, then you may want to try a different budget.

Is the 50-30-20 budget gross or net?

The 50-30-20 rule is based on net income, not gross. You make your budget with the money that you have after taxes.

Otherwise, your numbers won’t be accurate because money still has to come out of your income for taxes, so you are overestimating the amount you have to spend.

What are the flaws of the 50-30-20 rule?

The flaws of the 50-30-20 rule mostly have to do with preference and income.

Your preference may be to spend more on savings and less on fun money, in which case you might not like the 30% wants category.

Even though it does have flaws, you may find that it works well for your lifestyle.

Is the 50-30-20 rule weekly or monthly?

The 50-30-20 rule applies to your monthly income and monthly expenses list. So the entire budget is based on what you make in a month.

Doing this budget weekly would be time-consuming and confusing, so it’s best to do this once a month and calculate your entire monthly income at one time.

Articles related to the 50-30-20 budget

If you enjoyed reading about the 50-30-20 rule, learn more about budgeting by checking out these articles next!

• 10 Of The Best Budget Templates And Tools
• 7 Money Ratios Every Clever Girl Should Know
• What Is The 60-20-20 Rule And How Does It Work?
• 10% Rule: Is Saving 10% Enough?

Leverage the 50-30-20 budget today!

Budgeting doesn’t have to be difficult, and this option is a great way to start your money goals quickly and easily, especially if you decide to use the 50 30 20 budget template.

Remember to use your post-tax income as your base and divide your money from there. Now that you have all the steps in place go ahead and get started!

P.S. Here are other budgeting methods to explore. The 80/20 budget, the 60 20 20 rule, the 70-20-10 budget, and also the 30-30-30-10 budget!

The post The 50-30-20 Rule: How It Works + A 50 30 20 Budget Template appeared first on Clever Girl Finance.

A cash envelope system is a useful budgeting tool for anyone that needs a visual budget to stay on track. Not only will this method help ensure your spending is controlled, but it has also been shown that cash envelope budgeting may lead to spending less money!

Although the envelope money system will not work for everyone, it can be a great option for anyone that needs to see exactly where their money is going.

In this article, will dive into explaining what the cash envelope system is and how it can be used to stay on top of your budget.

What is the cash envelope system?

The cash envelope system is exactly what it sounds like. You put your cash into different envelopes based on your choice of budget categories. Next, it’s time to figure out how much will go into each cash envelope based on your spending goals.

For example, I might put $300 in the grocery budget and $150 in the fun budget. The key is that I’d only be able to use the cash from these envelopes to pay for expenses that fall under each category.

The cash envelope categories are designed to encompass your variable spending. So, you would have a groceries envelope, one for beauty, another one for household supplies and an envelope for fun. You could also try a cash envelope challenge for a fixed time period!

However, your fixed expenses such as your mortgage or car payment are not meant to be included in your cash envelope budget. You can continue to pay these fixed expenses as you normally would.

Does the cash envelope system work?

Yes, the cash envelope system works and it can transform your finances. That said, it needs to be a good fit for you. With the cash envelope system, you’ll be able to easily see how much you are spending in each category based on the cash you have on hand.

Instead of simply swiping your debit or credit card and forgetting about it, you’ll be forced to part with your cash in exchange for your purchase.

The physical action of handing over cash can make you stop to think about exactly how much you are spending in the checkout line. It is a more tangible process to spend cash as opposed to plastic funds. As you spend the money in each cash envelope, you’ll be forced to watch your cash funds dwindle.

Simply seeing where your money is going can be a transformative process. You might be less likely to overspend when you can see your cash flying out of the envelope.

For example, you might skip an impulse buy towards the end of your shopping trip because you know that you only have so much money to spend on that category before the end of the month. If you have a habit of overspending, then the cash envelope system might be a useful budgeting strategy to try.

Is the cash envelope system the same as cash stuffing?

Yes, cash stuffing is a more modern term that is used to describe the envelope system. You’ll probably come across references to cash stuffing more on social media, but it works in exactly the same way as the cash envelope wallet.

Cash stuffing refers to the part of the budgeting method where you physically withdraw money from your bank and stuff it into pre-labelled envelopes that cover your spending. You then use this cash to pay for your expenses for that month.

If you don’t fancy stuffing cash into envelopes, some people use jars, binders or any type of container to hold your money.

Who is the cash envelope system ideal for?

The cash envelope system works best for anyone that needs to visualize where their hard-earned money is going and take control of their finances.

So, should you use the cash envelope method? If you answer yes to any of the questions below, it’s definitely worth a go!

• Am I new to budgeting?
• Do I need help sticking to my monthly budget?
• Am I a person that likes to visualize things?
• Do I regularly overspend?
• Am I unaware of where my money goes each month?
• Do I want to control where my cash goes?

How to use the cash envelope system

When you first start to develop your cash envelope money system, it is important to remember that every budget is unique. You have the ability to choose your cash amounts for each category.

With that, the amount of cash you place in each envelope is a reflection of your personal values. So it will likely be different than anyone else’s. For example, I might put a large portion of my cash into my ‘hobby’ envelope while others may put a large portion of their cash into a ‘pet envelope.’

Don’t compare yourself to others because you are the person who will need to stick to the budget. Also, don’t try to restrict yourself too much at one time because you might be more likely to break your resolve.

It can feel like a complicated process for the first couple of months. But once you get the hang of it, you might find it infinitely more effective than your previous budgeting methods. The key is to stick to the plan and work out the kinks for the first couple of cycles.

If you are intrigued by the idea of cash envelope budgeting, then read on. We will show you exactly how to get started with this budgeting strategy.

1. Create your budget

The first thing you need to do is create your budget. In order to successfully use your cash envelope system, you’ll need to create a meaningful budget. If you put too much or too little cash into your envelopes, your whole financial life might go haywire.

It’s not difficult to build a budget for yourself, but it is important to understand that you’ll likely need to tweak it over time. Life changes as you grow and you’ll need to adapt to new expenses as they arise.

To start building a budget, you’ll need to track your spending. If you have no idea where your money is going each month, then you’ll need to start here.

I recommend tracking expenses by combing through bank statements and credit card statements or saving your receipts for later. It is a good idea to track your expenses for a minimum of a month. For a full picture of your variable expenses, you may want to track your expenses for three months.

In addition to tracking your expenses, you need to find out what you can actually afford to spend each month. Take a closer look at your income after taxes to ensure that you are creating a budget that you can actually afford. After determining your post-tax income, determine how much of your income needs to cover your fixed expenses such as your mortgage.

Once you’ve subtracted your fixed expenses from your post-tax income, you’ll know exactly how much money you have leftover for variable expenses. You can make envelopes to encompass each of your variable expenses.

2. Look at your spending categories

After you have tracked your spending for at least one month, it’s time to split your spending into separate cash envelope categories. This will tell you how much you have spent in each area.

A few variable cash envelope categories that you may want to include are:

• Food
• Restaurants
• Gas
• Fun
• Beauty
• Pet
• Vacations
• Clothes
• Hobby
• Miscellaneous – anything else that needs to come out of your variable outgoings

After you’ve determined how much you’ve spent in each category, make sure that you can actually afford this level of spending. It might surprise you to find out that you’ve spent more than you’ve earned in a given month.

If you’ve spent more than you’ve expected, then the cash envelope system could be the best solution for you. It will force you to think about your spending before you make the purchase.

As you move forward with the cash envelope budgeting system, think of it as a fresh start. Don’t beat yourself up over past spending mistakes. Instead, look towards the future and work towards your financial goals.

Whether you want to pay down credit card debt or build your savings, a cash budgeting system can help you to achieve those goals.

3. Set limits for all categories

Next, set spending limits for each of your cash envelope categories. Start with what you are able to spend in a given cycle, then take your previous spending into account. Base your spending limits on how much you can actually afford, not what you think you can spend or would like to spend in a given category.

When setting limits for my own budget, I found that my new spending limits seemed harsh. However, I learned that living within my means was critical to long-term financial and total well-being, so it was important to be honest with myself about this.

If you cannot stick to the spending limits, then it might be time to start thinking about a flexible side hustle to supplement your income.

4. Fill your envelopes with cash

After you’ve set your spending limits for each cycle, now comes the easy part of filling your cash envelopes. Either fill your envelopes with your next paycheck or once a month. Find a cycle that works best for you and try to stick to it. Make sure to avoid any unnecessary ATM fees while taking out cash.

Once the money is in the correct cash envelope, you’ll need to diligently spend out of the appropriate cash envelope categories. If you have extra cash at the end of a cycle, then I’d recommend rolling it into the next month or putting it into your savings.

If you are saving money, you can try out the 100-envelope challenge or the 200-envelope challenge!

5. Adjust as needed

As you continue to use the envelope money system, it is important to realize that you may need to adjust along the way. In fact, adjusting your budget along the way should be an expected part of the process. Don’t expect to nail your spending restrictions in the first month.

Some spending categories might seem overly stuffed while others are ambitiously slim. Although it is all variable spending, you should set spending caps for each category relatively close to what you need each cycle.

Throughout the process, you might uncover a bad trend or hidden spending habits that are destroying your budget. You may also find that you are more thrifty than you thought! When you are pressed against the cash restriction, you might find that you are suddenly more willing to try a DIY fix instead of throwing cash at your problems.

If you find that the cash envelope system is not working for you but the budgeting categories are helping then consider another option. You may want to switch to a ‘virtual envelope’ system instead of a cash system. Be aware of your own preferences and build a budget that will encourage you to stay on track.

Expert tip: It’s ok to repurpose your cash envelopes if you need to

It’s ok to repurpose cash from other envelopes occasionally if you’re running low in a spending area. Personally, I’ve done this several times. But only if you’re 100% sure that you’ll have enough left in the envelope that you’re taking from to cover your expenses for the month.

If you do find yourself taking cash from other envelopes, it’s a good idea to rethink how much you are allocating to that particular category and even the labels you are using.

The cash envelope system takes some time to perfect, so don’t give up straight away!

Where to find your cash envelopes

The cash envelope budgeting system is a very popular approach to getting a handle on your budget. Due to this popularity, you have many choices when it comes to carrying your cash in these envelopes. They can even make great gifts for your financially-astute friends.

Here are a few places to look: (Note –This section contains some affiliate links from brands we use & love that help us grow Clever Girl Finance! Please see our disclosures for more information.)

Plain white envelopes

Of course, you can go with the standard white envelopes. After all, if your ultimate goal is to save money then this is an affordable option. You can get 500 plain envelopes for around $20 on Amazon.

Amazon

Many Amazon sellers offer colorful envelope options to keep your budget cheerful. Our favs are these cute reusable cash envelopes for under $15 which also come with budgeting sheets.

Etsy

Etsy offers a multitude of fun cash envelope options to make sure your budget stays fun. Choose an option that suits your style.

Make them yourself

You can also make fun cash envelopes yourself, and this is my favorite idea. After picking out some fun paper from the craft store, you can fold your own envelopes and decorate to your heart’s content. Don’t be afraid to enjoy the crafting process. Plus, I find that I’m more likely to stick to the cash system if I’ve put in the effort to make my own envelopes.

Be sure to check our detailed list and review of the best cash envelope wallets.

If you are worried about how to carry your new envelopes in a fashionable way, don’t worry! You don’t have to leave these envelopes full of cash loose in your purse.

Many stores offer cash envelope wallets that will allow you to stash your envelopes in addition to your other wallet essentials. You can still have a functional wallet that offers an organized way to keep track of your cash.

As an alternative, you can also use digital cash envelopes too!

What are the pros of cash envelopes?

There are lots of different budgeting techniques out there, so it’s important to find one that works for you. The benefits of using cash envelopes are:

Take control of your spending

The cash envelope system will highlight which areas you’re overspending on, so you can easily identify what you need to cut back on. Impulse purchases are also much less likely to happen because a transaction needs to be planned to ensure you have enough cash.

Gain insights into your spending habits

Lots of people don’t actually know where their monthly income goes. If this applies to you, creating an envelope for each spending area will highlight exactly what your money is being spent on.

Flexibility

It doesn’t matter how old you are or what your financial goals are, the envelope system is a great way to budget. You can easily change your spending categories and limits in each area as your priorities change.

What are the cons of cash envelopes?

If you’re thinking about using the cash envelope method, there are some things you need to be aware of first.

It can be difficult to track family spending

If you have a family budget, it can be hard to keep an eye on where your money is going if different people are taking cash out of the envelopes. If you do decide to use cash envelopes, you’ll need to keep track of where the money from each envelope goes with a list or spreadsheet.

Holding cash carries some risk

Keeping large amounts of cash at home can leave you vulnerable to theft or loss. Likewise, withdrawing cash at an ATM and carrying it home can be risky compared to just making online purchases.

Cash won’t improve your credit score

Dealing purely in cash does have its downsides if you need to borrow money in the future. Making purchases in cash doesn’t demonstrate to lenders that you are responsible with money like having a credit card does.

How do I start using cash envelopes?

First things first, you need to make the time to set up and organize your spending categories, cash and envelopes. The best time to do this is at the end of the month, so you can get everything ready for the start of the next month.

Do this when you don’t have any other distractions and you’re positive and motivated. You need to be focused and in the right mindset to achieve the best results. 

Next, follow these steps:

1. Create your budget
2. Look at the categories of your spending
3. Set limits for each category
4. Fill your envelopes with cash
5. Adjust your envelopes as needed during the month
6. Review and reset for the next month

It may take a few months to get used to this budgeting technique, but it’s worth sticking with it if you want to take back control of your spending. As the months go by, it will become second nature and you’ll have a detailed insight into your spending habits-both good and bad!

How do you categorize cash envelopes?

Everyone will categorize their spending areas differently, and that’s ok! The most important thing is that the categories you use work for your individual spending habits and lifestyle. Start by considering what areas you spend money on each month.

Here are some suggestions for how to organize your categories effectively. You don’t need to use all of them, just pick the ones that suit you.

• Mortgage/rent
• Groceries
• Utility bills (including cell phone bills)
• Medical
• Car (payment, fuel, gas, insurance, maintenance)
• Household items (necessities such as cleaning supplies and toiletries)
• Clothing and shoes
• Children
• Pets
• Leisure and entertainment
• Hobbies
• Travel and vacations
• Gifts
• Miscellaneous (to cover anything that doesn’t fall into another category)

Before you decide on a budget for each area, I recommend writing a list of the types of things that will come under each category. You can then refer back to this at a later date if you’re not sure what category to put an item into.

What do I do with money left over in my cash envelopes?

If you find yourself with extra money in your envelopes at the end of the month, there are a few things that you can do with it.

Save it

Give your savings fund a boost and get one step closer to achieving your next goal.  Whether you’re working towards having enough funds to take a vacation or buy a new car, every little will help you smash your target.

Pay off debt

The sooner you pay off debt, the less interest you will pay over time and the more financial stability you will have. So using leftover money from your envelopes is a smart financial move.

Carry it over to next month

If you have a tight budget, putting leftover funds into next month’s envelope is a great way to keep control of your spending. This will work particularly well if you’re new to the cash envelope budgeting system and still figuring out how much money to allocate to each of your spending areas.

Treat yourself

Everyone deserves a treat now and then! Budgeting isn’t all about only spending money on essentials. It’s about being smart with your money. And if you can afford a treat, you should absolutely do it!

One of the many benefits of the cash envelope system is that it’s flexible. One month you could use spare money to pay off debt and the next month you could treat yourself. Or you could even do a combination of a few of the ideas above.

If you find yourself with spare money in your envelopes regularly it may be worth increasing your spend in some areas such as saving or debt repayments.

Articles related to cash envelopes and budgeting

If you enjoyed this article on the cash envelope system, check out this related content:

• Save $5k With The 200 Envelope Challenge!
• How To Use A Digital Envelope System
• How To Budget: Budgeting Methods And Budget Categories
• 100 Day Challenge Ideas: 11 Ideas To Reach Your Goals

Give the cash envelope system a try!

Cash envelope budgeting is an effective way to get your spending under control. If you are still struggling to stop overspending, then starting a spending journal might be the next step to kicking your spending habits.

Budgeting is a very personal choice. Although the cash envelope system isn’t right for everyone, there is a way to budget that will work for you. Consider taking our completely free course to build a budget that works for your lifestyle today.

Also, be sure to follow Clever Girl Finance on Instagram, Facebook, and YouTube for top financial tips and inspiration to achieve your money goals!

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