The 50/20/30 Rule of Budgeting

by Whitney Hufnagel, Heritage Trust

Life is all about making decisions. From the time you wake up each morning to the time you go to sleep each evening, you will have likely made hundreds of decisions. Most daily decisions seem small and routine, and every now and then a major life decision is sprinkled in the mix. Most of us can probably agree that it is easy to see how major life decisions can have a large impact on our financial situation, but how many of us realize the compounding effect these seemingly small daily decisions can have on our ability to reach our financial goals?

Our daily decisions, whether good or bad, help form habits. The habits we create have the ability to carry us successfully towards or destructively away from our goals. Creating a budget is just one tool that can help foster and maintain healthy financial habits. Budgets allow us to make sure we are spending our dollars wisely and in a manner that is appropriate for our unique situations and interests. Often times, people don’t attempt to budget or give up on budgeting because it can be time consuming, confusing, boring, unrealistic, or feel too restrictive; however, used in the right way, a budget can be very powerful and aid in daily decision making.

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The article below discusses a simple 50-20-30 rule to budgeting that may make budgeting easier for a novice and quicker for a pro. Simply put, 50% of your income should go towards living and essentials, 20% should be allocated towards financial goals, and 30% should be allocated towards those things you want but don’t need. As the article mentions you can adjust the percentages in a way that fits your unique situation. However, try not to reduce the 20% allocation toward financial goals. If anything, increase that allocation.

Please remember, this is a rule of thumb and does not ensure financial success. It is simply a tool that can help you determine whether your decisions and habits are financially healthy, help you identify areas of improvement, and help you maintain a level of awareness to make sure you are spending your dollars in an enriching way for your unique lifestyle. If you would like to discuss budgeting or financial planning in more detail, please contact us to see how we can help you.

New to Budgeting? Why You Should Try the 50/20/30 Rule – Forbes.com

If you’re new to budgeting, figuring out how to manage your money each month can feel overwhelming. Not only do you need to organize, but you also have to make difficult decisions about how to spend your cash. Relying on the experiences of others can help only so much, because your income and expenses are unique. Someone may be able to spend $2,000 per month on rent in Arlington, VA, but that kind of spending may not work for you.

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