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Your Life

How the 50/30/20 Budgeting Rule Can Help You Save

Hear from Shawn O’Brien our Consumer Banking Group Executive

No one said that saving was easy. That’s why having a plan for your money is always a good idea. Adopting a 50/30/20 budgeting strategy can give you a solid foundation to your overall spending plan as you look to save for retirement, education, a down payment on a car or house, an investment opportunity, or any other future need.

What is the 50/30/20 budgeting rule?

The 50/30/20 budgeting strategy is a simple way to allocate your take home pay to help ensure there’s some left over for savings. By doing some easy percentage calculations and breaking down your monthly income into three main categories (Needs, Wants, and Savings), you can plan accordingly by understanding the clear separations between your essential living costs and everything else. 

50% – Needs

Needs are essential. This category includes items such as your rent, mortgage, groceries, health insurance or health costs, utility bills such as gas or electricity, car payments, or other minimum payments that come due every month, for example: credit card or loan payments. Anything else that doesn’t fall into this category – entertainment, ordering take out, unessential clothing, gym membership – should not be considered essential. Needs are only the goods and services that are absolutely necessary.

30% – Wants

Wants are non-essential. You may think that because you spend within this category on a regular basis that some of these items may be classified as Needs, but they often aren’t. Going out to dinner, ordering take out, buying a new phone, going to a concert or sporting event, vacations, etc., should all be considered Wants. If the line is blurred between Wants and Needs, think about how necessary the item is. Can you live without it? If you can, it’s probably a Want.

20% – Savings

The importance of savings can’t be measured. Whether it is a down payment on a house, paying off debt, education costs, a car repair or home improvement project, a vacation or investment opportunity, building your emergency or retirement fund, when you have savings you have options and financial flexibility. Here’s where the 50/30/20 strategy comes in to play to help you save. With 80% going towards Needs and Wants, that leaves you with 20% to allocate for Savings – while also helping to set financial goals and encouraging you to resist dipping into the 20% for other reasons.

Benefits of 50/30/20

Seeing your big financial picture. Categorizing where your money is going can help you set a financial plan in motion. When you measure or track your spending habits and cost of living, you may see opportunities to make reaching goals easier.

Making adjustments. Opportunities to curtail spending habits may become clearer when all of your spending is being categorized. Seeing where your money is going each month can motivate you to change bad spending habits. For example: subscription services you don’t use that much or excessive ordering of food delivery.  

Peace of mind. Having any sort of plan with your money that may lead to a positive end result can give you a feeling of, not only accomplishment, but relief in knowing progress is being made towards living a less stressful financial life.

Implementing 50/30/20

To get started, it may be a good idea to gather some of your financials from the last few months. Check out your bank statements, however you receive them, or go to our Online Banking and check account history. That should give you a good snapshot of where your money is going.  If possible, transfer some of your data to a spreadsheet so you can track expenses.

You may choose to start some simple calculations to see where your 50/30 split is. Take a look at your Needs list – groceries, utilities, etc. Are you allocating more or less than 50% already? Are you spending more than 30% on Wants? Here’s where you can make changes if necessary – cutting back on certain spending. Remember: anything other than Needs and Wants is going towards your savings initiatives, whatever they may be.
The 50/30/20 rule may be a helpful way to reach financial goals and, most importantly, to encourage an examination of spending habits to help you save. Depending on your circumstances or the cost of living in your area, it might not work perfectly for your financial situation. But, it could be a great place to start thinking strategically about your money.
Atlantic Union Bank is here to help. Whatever your savings goals are, we may have an option that fits your needs. See our savings accounts.

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