The 50-30-20 Rule – Finance for Teens! #Finance

When you’re learning all about Budgeting you will hear a lot of Budgeting rules that people swear by. Stuff like your rent should be less than 30% of your total Income or cut your own hair, barbers are way too expensive! I cannot

follow that one, my signature hairdo takes a lot of work. Budgeting rules are meant to be guidelines to help you live within your means so picking one and sticking to it is important. The 50-30-20 rule is one of the most common Budgeting rules out there. The

50-30-20 rule is a simple Budgeting technique that allocates your Income into three separate categories: needs, wants, and Savings. 50% of your Income should go towards your needs, or those expenses that you couldn’t possibly

live without because they’re required for survival. 30% of your Income should go towards your wants, or the expenses that you could probably live without but they’re really nice to have. And the final 20% of your Income should go towards your

Savings so you always have some money stashed away for those future big purchases or emergencies. Using the 50-30-20 rule has its advantages. For example, it forces you to take a look at all of your expenses to see what you could potentially cut out of your life to save money. Also

it automatically allocates a significant amount of your Income into Savings so you don’t even need to worry about spending that money. When using the 50-30-20 rule it’s important to know how much Income you’re going to be

splitting amongst the three different categories. According to the united states bureau of labor statistics, in 2021, the median weekly wage for a worker was $1,000. One week times four is about $4,000 a month but that gets taken down to about 75% of that after Taxes so about

$3,000 a month. For the rest of this CashNews.co this is the Income that I’m going to use for my example budget calculations. Pause the CashNews.co now to follow the directions in your guided notes to estimate how much money you could be bringing home each month in your

future career so that you can learn how to budget for it. Once you figure out how much pay you’re taking home each month you can then figure out how much of it goes into your needs, wants, and Savings. The calculations for these are actually pretty simple and they’re

even easier if you use your spreadsheet. Multiply your monthly Income by 50%, or 0.5, to figure out how much you should spend on your needs. Multiply your monthly Income by 30%, or 0.3, to figure out how much to spend on wants. And finally, multiply your monthly

Income by 20%, or 0.2, to figure out how much goes into your Savings. For example, let’s say that you made the median take home pay for 2021, or about $3,000 per month. According to my calculations that means you should allocate $1,500 for the stuff that you

absolutely need, $900 for the stuff you want, and $600 for your Savings. Here’s where it gets tricky, figuring out where your current budget needs readjusting so that you can meet your goals. You have to lay out exactly what you’re spending on your needs and your wants

so you can cut some stuff out if necessary. Separating your needs from your wants can be tricky. For example, you may think you need your biweekly trip to your local Mexican restaurant but all you need is food. You may want that to be burritos but you could maybe save money by eating out less. On

the flip side, you may think you can save money by selling off your car but if your city or town doesn’t have reliable public transportation you may not have much choice. In that case you could instead save money by sharing a car with a roommate or future spouse. Whether a car is a want or a

need depends on your personal situation and where you live. A few examples of expenses that would be considered needs are things like rent or home payments, groceries, or utilities like electricity and water. Some people would also consider stuff like their car, gas, and phone needs because some

lifestyles and careers could not function without them. You probably also pay for a lot of wants too. Things like CashNews.co games, streaming services, and vacations are nice to have but you could live without them if you had to. Anything that could be replaced with the cheaper alternative should

also be considered a want. For instance maybe you have a gym membership but it could be cheaper to work out at home instead. Or maybe you like getting your nails done at the salon but it might save you a lot of money if you did that at home too. Some people prefer to break down this type of want

into pieces by putting the absolutely necessary part of it in the needs category while including the additional cost of the preferred, the more expensive version, in the wants column. If coffee is an absolute must-have for you, you could put the bare minimum cost of making it yourself at home in

the needs column while putting the additional cost for going to the coffee shop each day under wants. That way if you find that you’re spending too much money on coffee you can cut out the coffee shop while keeping the coffee by making it yourself at home. Take a moment now to list as many

wants and needs as you can in your guided notes. Try to include things that you spend money on now as well as the things you’re going to need to spend money on as an adult. It’ll also help if you can estimate how much you spend on these things each month. Ask a trusted adult for help if

you’re not sure how much something costs. Once you’ve listed all of your expenses, add up all your needs and add up all your wants. Here’s my list of needs which add up to $1,700 a month and here’s my list of wants which add up to $1,040 a month. As a reminder here are my

goals from the 50-30-20 rule. Uh, as you can see I’m spending too much on both categories. Guess that’s why my Savings have been growing so slowly lately. After I take care of my needs and my wants I only have $260 left to put into Savings. Time to

readjust my budget. Well needs are a bit hard to cut out because well, they’re needed, but we can downsize some of them to fit our budget. Let’s see. Oh, well what about my phone plan? I mean I’m usually on my wi-fi at home a lot so I don’t actually use that much phone data.

I could probably just switch to a smaller data plan and save about like $50. Alright, what else, what else, what else, what else. What about my groceries? I mean like I need food right? But I usually end up going grocery shopping when I’m hungry and I splurge on snack foods and stuff. If I

was a little smarter about my grocery spending I could probably shave down another $100 a month. Okay, I think that’s all we can do with the needs section. I didn’t quite hit my goal but it’s up to you to decide how close is close enough, but remember every extra dollar in your

needs or wants is a dollar taken out of your Savings for the future. And speaking of wants, let’s see if there’s anything here we can just cut out entirely. I sell art on the side to make more money so I can’t cut out the supplies and I do like my CashNews.co

games, but I do have a lot of games saved up that I just haven’t played yet so I guess I could play those instead of buying new ones. Oh, now what about the gym membership? Yeah I could just save money by canceling that and working out at home! I’ve already accounted for that in my

needs section too. After all my changes here’s how my new budget looks. I still haven’t quite hit my goal for my needs but I’ve decreased my wants enough to make up the difference and my Savings have landed perfectly on target. Here’s the hard part, now I

have to put it into action. All those changes I made to my budget, downsizing my data plan, buying less CashNews.co games, and working out at home, I actually have to do them in order to save money. It’s one thing to say that you’re going to make a change it’s a lot harder to

actually go through with it. Nobody said Budgeting was going to be easy but you’ll appreciate the extra Savings and financial stability in the future. Speaking of, I should probably run to my gym and cancel my membership before it closes. Why don’t you

get started practicing the 50-30-20 rule on your own budget? It’ll be great practice for our next lesson on envelope Budgeting which is a great way to improve your budget tracking. See you then!