Build a healthier budget using the 50/30/20 rule

It can be possible with a simple budget approach called the 50/20/30 rule. It divides your take-home pay into three categories — 50% needs, 30% wants and 20% for savings.

Get your 50/30/20 budget and then personalize it to your priorities and situation

The 50/30/20 approach can be a helpful way to get started with budgeting. It’s a simple rule of thumb that suggests you put up to 50% of your after-tax income toward things you need, 30% toward things you want and 20% toward savings. 

50% Needs
Things you must have or can’t live without.
Examples: housing, groceries, utilities, transportation, child care, debt payments

30% Wants
Things you can cut back on or do without.
Examples: entertainment, dining out, clothing, splurges

20% Savings
Money you save for future goals.
Examples: emergency fund, home, vacation, retirement, financial freedom

Having a budget that organizes your finances into categories and suits your personal needs can give you the freedom to enjoy your life while staying on track with your financial goals.

Why budget?
A budget is the cornerstone of any financial plan and essential to your personal money management. It allows you to get the most out of your income and find some space for competing priorities. A budget can you help understand your day-to-day spending, while building an emergency fund, putting some money aside for what you’d really like, and making sure you are contributing to your future.

So where do you start?
First, you’ll want to set some goals before creating your budget. Do you want to buy a home, save for a vacation, start an emergency fund or get out of debt? Simply put, setting financial goals will motivate you to get where you want to go in life and stay on track.

Next, you’ll want to know how much income you are bringing in. Take about three months of living expenses to track spending. Look at your fixed costs like your rent, car payment and cable bill. Review your bank and credit card statements to see how much you are spending on things like entertainment, dining out or other splurges.

Then, using Voya’s Budget Calculator, an interactive, online experience to help you create a monthly budget, you can calculate your income and expenses. It will automatically display your information within the 50/30/20 model and show you where you may be out of balance.

Use the 50/30/20 rule as a guide to get you started. The calculator can give you practical tips on how to balance your budget and stretch your income.

If you are out of balance, identify ways to reduce your costs. Even if you have debt, you’ll want to continue to contribute as much as you can to retirement and savings. As you reduce your debt, use former payment funds to increase your retirement and savings contribution. This allows you to take advantage of compounding interest and earn more over time.

Organize your goals around your needs, wants and wishes to better map your short-term and long-term priorities. Build your budget to support your priorities using the 50/30/20 method as a guide. Now that you have a budget, set it into motion and simplify your life by automating your bill payments and savings. It’s a good idea to check in now and again to make sure you are on track and adjust as needed. Remember, be flexible, keep going and know all good things take time.