Budgeting can often be easier said than done, especially if you haven’t done it before.

However, if you’re having trouble saving money, budgeting is the key. It allows you to clearly understand where your money is going so you can make educated spending decisions.

If you’re spending $20 here and $50 there without really allocating that money as spending money, it’s not unusual to end the month with nothing left over. And, living paycheck to paycheck makes it pretty difficult to save for things like a down payment.

The good news is budgeting doesn’t have to be overly complicated. You don’t need spreadsheets or a background in finance. If you follow the 50-20-30 Rule, you’ll be able to save a little and splurge a little, while meeting your monthly financial obligations.

 

50-20-30 Rule

The 50-20-30 Rule splits your monthly income into three easy to manage categories:

50% of your income is used to cover living expenses and essentials. This includes items like your rent, utilities, groceries, gas, prescriptions, phone bill, and toiletries.

20% of your income is applied towards your financial goals. This could include building up a rainy day fund, investing in the stock market, paying down existing debt or paying for classes to advance your career.

30% of your income is reserved for your flexible spending – aka splurging. This covers items and activities you want, but don’t need. It could cover everything from vacations and shopping trips to dinner out with friends and Christmas presents for your loved ones.

 

Putting the 50-20-30 Rule Into Action

Begin by looking at how much you currently bring home each month. (If you are self-employed, you’ll want to carefully track your earnings and create a monthly earnings estimate.)

Next, add up all your monthly necessities. Don’t fudge under a little here and there. Be as precise as possible. Ideally, the total sum should fit within 50% of your monthly earnings. If it doesn’t, you might want to consider where you can cut back. Maybe you’re living in an extravagant apartment. Perhaps you can take public transit one or two days a week rather than driving.

You’ll also want to track your flexible spending. Keep receipts and see how much you’re spending on extras.

At the end of the month, how much do you have left? Ideally, you’ll have at least 20% of your monthly earnings left to bring home.

Curious if you have enough saved up for a down payment? Give me a call today.