With all the things out there in the world to see and do and eat, creating a budget can seem impossible—and sticking to it, even harder. But budgeting is a necessary planning tool that we need to ensure a happy and comfortable future for ourselves and for our families.
We generally have three critical priorities: food, shelter, and some form of transportation. Then there come other expenses, too, like student debt, saving for retirement, medical necessities, and entertainment. Though we live in a society where most people carry some kind of credit card or loan debt, the important thing to remember is to simply not spend money we don’t have, which is certainly easier said than done. So how do we know where to begin budgeting, and where should our money be going?
One good way to decide how to budget money is to follow the “50/20/30” rule, which specifies that 50% of budget go to fixed costs (bills that don’t change much from one month to the next, like rent, memberships, utilities, or vehicle payments). Then, 20% of our income should go into retirement, credit card payments, emergency money, or other expenses that will help us save for the future. Lastly, the remaining 30% of our income can be considered for flexible spending—entertainment, groceries, shopping, hobbies, or leisure activities.
LearnVest offers this tip for knowing how much flexible spending you can afford: “To determine your flex-spending amount, we recommend first subtracting your fixed costs and financial goal contributions from your take-home pay (the amount that hits your bank account after taxes and any 401(k) contributions). This way, you’ll know that the amount that’s left for flexible spending is truly yours to spend however you want.”
To set up a smart budget for yourself, there are a few things you can do: decide on your priorities, use a money-management tool to track your spending, think about the year as a whole rather than one month at a time, and give yourself a reasonable amount of time to save for the things you want.
But it’s important to reward yourself sometimes, too. The goal for a budget is to live comfortably and to save for the future, not to wipe all fun and leisure out of everyday life. So while you’re saving for then, don’t forget about how you want to be living now.