What keeps you up at night series.

Did you ever look at your bank balance and wonder “where did it all go”? Am I saving enough for the future? What happens to my money? In today’s world of electronic banking, it is easy to lose track of where your money is going, how fast it is going, and are you setting enough of it aside for future use/purposes.

I frequently tell my clients to follow the 50/20/30 rule. This budgetary guideline helps give direction for greater future stability and better night’s sleep. Based on the calculations created from our net income explanation and breakdown, let’s look deeper into how our percentages need to be allocated.

The “50”- Fifty percent of your net income should be used to meet your essential needs. Food, shelter, water are the essentials costing fifty percent of your net income. Housing is the largest portion of your budget. Also included in this subdivision is food as in groceries, not dining out. The next portion of your essentials is utilities. Only the basics are included here- heat, water, and electricity. The final allowance in items necessary to live is the cost of getting to work. One must get to work in order to earn income and continue survival. This may be car expenses, bus fare, subway fare, Uber, taxi; whatever it takes to get you to work.  These four items should use one half of your net income.

The “20”- Twenty percent of your net income should be used to build your future. If any person does not want to listen to the other breakdown of income, they must at least follow this. The other 80 percent of money gives you a guideline of lifestyle to save and build at least 20 percent of your income. This amount should be going towards reduction of any debt you may have and, more importantly, saving towards a better financial future. Retirement saving, emergency fund building, education planning, wealth building, these are all very important future needs which must be addressed and provided. This is the one category of 50/20/30 that discusses a minimum (20%), as opposed to a maximum amount spent in the other two areas. The minimum of 20% net income being used for the future supports the “pay yourself first” theory. All extra funds not used in the other two categories need to be added to the future building, stress reducing, minimum 20 percent.

The “30”- The final thirty percent of your net income needs to be allocated to the lifestyle support.  Internet, cell phone, dining out (even Starbucks), extra money for a car too expensive to be covered in the essential 50. The final 30% is where you determine the type of expenditures you want rather than what you need (essentials and future building). All monies not used in this area should be thrown into the 20% future building bucket.

The 50/20/30 budgetary guideline provides a strong formula to help you determine- where does my money go? Am I saving enough? It helps you to take exact numbers and put it to your own finances in order to help relieve stresses and money questions that may keep you up at night.


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