A few years ago, a writer at LearnVest introduced the 50/20/30 guideline for budgeting and it’s a pretty simple yet effective concept.
50% of your income goes to fixed expenses like rent, utilities & groceries.
20% of your income goes to savings goals
30% of your income goes to lifestyle choices like shopping, vacations, brunch and drinks.
At the time I completely jumped on board with this theory and implemented it as my own budget guideline. Over time I felt that the 20 and the 30 should be flipped so I wrote more about it for Black Enterprise this past summer.
In that article I still recommended allocating 50% of your income for living expenses like rent and utilities; but instead of 30% for lifestyle choices I allocated 30% for debt payoff, savings, and investments.
Raising the percentage to 30% was to help readers understand the role debt should play in their overall financial picture. In an ideal financial world, you would owe no debt, but if your debt is 10%, 15% or 20-25% of your income there is still hope for you.
With this new 30% savings, debt and investing model it gives you the incentive no matter what percentage of your income your savings are today to keep paying down all your debts, while gradually increasing your savings contributions until they represent a full robust 30% of your budget.
One of first mental barriers that need to come down to fully embrace this mindset and develop good saving habits is start looking at your savings like another bill you have to pay monthly, a bill you pay to yourself. This will help keep you stay committed month after month and brings some reality to the concept of paying yourself first.
After a while I even started challenging my living expenses reducing them from 50% to 35%. I kept my lifestyle choices at only 20%, debt at 10% and increased my savings to 35%.
Setting budget percentages is just a parameter, a starting point; but after you master the habit, celebrate your financial victories as your savings start to add up and debt goes down. You will start to crave even more ways to save and challenge yourself even more.