If you earn $60,000 a year, your net monthly income (what you take home after Social Security, federal and state taxes are taken out) will only be about $3,750 per month, so it’s important to budget wisely. The 50-20-30 rule is a structured budget that allocates 50 percent of your monthly income toward necessities, 20 percent toward financial investments and 30 percent toward lifestyle extras. Each of these categories can be adjusted, but the goal of this system is to have all spending accounted for ahead of time, thus avoiding any surprises.
Necessities (50 Percent)
Your necessities budget should not exceed 50 percent of your monthly net income, which is about $1,875 for an annual salary of $60,000. This section of your budget shouldn't change much each month and must always be paid in order to provide your basic necessities, such as housing, transportation and groceries. Housing costs can include anything from utility bills – such as water, electric, cable or internet – to rent or mortgage payments. Carefully record your reoccurring housing bills and include them in this part of your budget. They should not account for more than 30 percent of your monthly net income, or $1,125 for an annual salary of $60,000.
Once housing is paid, the remaining 20 percent of your necessities budget should be split between transportation and food. Transportation can refer to anything like a metro card, bus pass or car payment, so be sure to include any related expenses in this category. If you have a car, make sure to include your car payments as well as insurance, registration, inspection, repairs, tune-ups and gas payments in your transportation budget. How much you spend on groceries may change each month, but try to set aside a monthly amount and divide it up per week. With a weekly amount in mind, you will know what to expect to pay for each visit to the grocery store, which can keep your budget on track.
Financial Investments (20 Percent)
Your financial investments should be about 20 percent of your monthly net income, which will be $750 for an annual salary of $60,000. This amount should include any debts you owe (other than car payments or mortgages), such as loans or outstanding credit card balances, and any money you plan to save or invest for retirement. If you struggle with saving money, it’s best to treat it like a regular monthly bill rather than spending your money and saving whatever is left each month. Schedule a monthly money transfer to your savings account and watch your savings increase incrementally.
Extras (30 Percent)
The remaining 30 percent of your monthly net income, which will be about $1,125 for an annual salary of $60,000, should cover your flexible spending. It’s best to treat this section as the "fat" of your budget, which is the first part to trim when your expenses exceed your budget. If the other areas of your budget are requiring more, pull from this part of the budget first. Once enough is put away into savings to cover emergencies, then you can resume discretionary spending as needed. The extras of your budget should include any spending that is not absolutely essential to your wellbeing but enriches your life in other ways, such as entertainment, hobbies or shopping.
If you are new to budgeting, look for tools such as apps, email alerts or planners to track your spending in a way that suits you. Rather than setting a hard line for each large section of a budget, it may be better for you to set a variable percentage for a period of time and track how those expenses change. Taking the time to plan out your spending will prepare you for unforeseen expenditures and adventures down the road.
Items you will need
- Budget worksheet
- Make the budget stretch further by using coupons and looking for sales.
- If you get a raise, pretend you are still making the same amount and save the extra money earned.