What is a budget? The 50/20/30 Rule
Video 01 | What is a budget? 50/20/30 Rule
Budget is a plan for what to do with your money
Easy to think you can afford everything you see once you get a grown up job
Have to make sure you cover what is important to you
The 50/20/30 Rule is a simple approach to get started budgeting
First, what are the main types of expenses?
Fixed Expenses - items that are fixed into your budget every month no matter what
rent, water bill, even netflix
Financial Goals - items that will secure your future
Paying down debt
Saving or investing
Flexible Spending - items that you buy but can vary in price greatly
Groceries, gas, entertainment
These three categories correspond to the three numbers: 50, 20, 30
Fixed Expenses should be 50% of your income, Financial goals 20%, and Flexible spending 30%
So suppose your take home pay is $2000 a month
Fixed = 50% = $1000
Financial = 20% = $400
Flexible =30% = $600
This is a guideline, there are no budgeting police!
You want to give your dollars a job to do so you don’t spend mindlessly
Just like humans need a purpose in life, your dollars need a purpose