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The thing about budgets that turns people off is that they can seem complicated. But in reality, the whole point of having a budget is to make your life easier. Maybe that’s why a LearnVest survey found that budgeting was the top financial goal for 32 percent of people: Because we just haven’t figured out how to wrap our minds around it.
A good, simple budget should do the work of managing your finances for you. It’s so important to remember is that budgeting isn’t about depriving yourself. In fact, creating a framework frees up funds for the fun stuff. And when you know you’re within the parameters of your budget, you can enjoy your hard-earned money guilt-free.
In the spirit of celebrating (smart) spending, here’s my very favorite strategy, the 50-20-30 rule. Use it; you will be pleasantly surprised at how quickly your financial goals come into focus.
THE 50
50 percent (or less) of your total monthly income should go to essentials—the absolute critical things (groceries, rent, mortgage, utilities, transportation to and from work).
THE 20
20 percent (or more) gets socked away for future financial goals, like paying down debt, fortifying an emergency fund, and saving for retirement.
THE 30
That leaves 30 percent (or less) of your take-home pay for vacations, eating out with friends, shopping, and entertainment (plus manicures, serums, yoga classes . . . you get the picture).
Keep your 30 percent in a separate account from the one you use to pay your bills, so that an emergency doesn’t draw from your vacation bucket.
The reason I love this budget is because it makes sure your important financial priorities are fulfilled, while leaving room for you to actually live your life. In all my years as a financial professional, the 50-20-30 rule has never let me down.
Best of all, this system is a first step towards creating a more comprehensive, holistic financial plan (one that includes investments, for example)—the smartest move a money-savvy person can make.