After graduating from college, it hit me. A real reality check, or, multiple reality checks actually. One of them was this no-student-discounts-anymore thing.
I knew my spending would increase, and I should probably focus on saving money (though IT IS still hard), but I didn’t really know how.
I finally figured it out with the 50-30-20 budgeting method, which is actually a simple rule you can apply no matter your financial situation.
Yes, you may need to cut on something, but I guarantee you that if you plan right, you manage to save a portion each month! So, without further ado, let’s get into it.
What is the 50-30-20 budgeting rule
You probably wonder what the numbers 50, 30, and 20 stand for. Here’s the deal: they tell how your monthly income should be divided – 50% should go towards needs, 30% towards wants, and 20% should be set aside as savings.
50% towards needs
The first category of the 50-30-20 rule may seem straightforward, yet sometimes, it’s confusing. 50% of your monthly salary is spent on the essentials. Recognizing what is a need and what is a want can be challenging, but more on that later. Needs include costs for rent and bills, essential groceries, mobile costs, and anything you know you can’t live without.
30% for wants
Wants include anything you can live without, but, well, don’t want to. This can be paying for vacations, gifts, eating out, sweet treats, or expenses for hobbies.
20% towards savings
The last 20% of your income should be saved. You can totally decide how, whether it’s investing, an emergency saving fund, or anything else.
50 30 20 budgeting rule in practice
So, how can you apply the rule to your own budget?
First, you need to find out what your needs and wants are. To do that, grab a piece of paper or a journal and a pen (or do it in a digital form), and separate the page in two columns – one for wants, and one for needs. Write down all the items you spend on, dividing them into the two lists.
If you get stuck in the needs vs. wants dilemma, I get it, I’ve been there. What helped me was asking honest questions like “Do I have other pairs of shoes I can wear?” or “Am I sure I need them or do I just like them?” can help.
Tracking your expenses
Once you know what your needs and wants are, let’s move on to the realistic part – how much and on what do you spend each month?
We’re going to do a bit of calculation here, so, obviously, you have to know your after-tax income and where your money goes each month to adjust your budget to the 50-30-20 rule. So, if you haven’t started tracking your expenses, this is the right time.
If you have an idea of how much you gain and spend each month on average, you need to see how much of your total expense went to wants and needs, and whether you managed to save any money.
If you have no idea of how much your monthly expenses are, we recommend you download a tracker app or create an Excel sheet with custom categories like rent, food, clothes, etc.
Adjusting your spending to the 50-30-20 rule
Now, you might notice your spending on needs, wants, and savings is not exactly in the ratio of 50:30:20, and you probably need to sacrifice some wants. Scary, huh? But I promise you – it’s worth it in the long run.
To inspire you, I give you some of my wants I decided to say goodbye to:
- Snacks – I decided to buy fewer sweet treats and chips. This will push you to buy some nutritious food, too!
- Old subscriptions – If you have Netflix, Disney Plus, and HBO, keep one and cancel the others.
- Clothes you don’t need – Don’t buy clothes you know you will hardly wear.
These are just some suggestions, but I encourage you to try making your own list and stick to it.
To wrap it up, the 50-30-20 budget rule helped me start managing my money as a post-grad, and I believe it can help you, too. All it takes is defining your needs and wants, analyzing what you spend on and how much, and making a few adjustments.