Thursday, May 19, 2016

Budgeting Tips: The 50/20/30 Rule

Managing your finances can be a tricky business. With a limited amount of money coming in, it can be hard to cover all of your day-to-day expenses and still have money leftover to save for the future. As your banking experts at the Lake of the Ozarks, we are here to help you successfully divide your budget to comfortably accommodate all of your financial needs. 

There are several different budgeting strategies that can be used to set yourself up for success. This week, we're delving into one particularly fascinating and helpful budgeting modality: the 50/20/30 rule.

What Is The 50/20/30 Rule?
Some budgets break down all expenses into 20+ different categories, all the way down to separate sections for clothing and Netflix. While this method works for some people, keeping track of all of these different categories can be confusing. The 50/20/30 broadens the focus to lump all expenses into three primary categories: fixed expenses, financial goals, and discretionary spending.

The Fifty: Put 50% Of Your Income Towards Fixed Expenses
Under this strategy, half of your income (after taxes) should cover all of your fixed expenses. Fixed expenses are the ones that are non-negotiable and essential to supporting yourself and your family, including housing, groceries, utilities, and transportation. If you are strictly adhering to this budget, keep in mind that some of the everyday resources we take for granted are not technically "required." Having internet and TV service in your home is a luxury, for example, and not technically a required expense for most individuals.

The Twenty: Put 20% Of Your Income Towards Your Financial Goals
What are your financial goals? Ideally, you should allocate 20% of your monthly income towards meeting these goals. Common examples include paying off outstanding debts, investing money in your retirement account, and setting aside money in your savings account to be used for travel or a rainy day. Many finance experts recommend putting a larger amount towards paying off debts at first, and then applying that money towards investments after the debts have been paid off.

The Thirty: Put 30% Of Your Income Towards Your Discretionary Purchases
A strong saving plan is a lot like a diet - if you constantly work without ever giving yourself a little leeway every now and them, you won't be able to sustain the pattern. Allow yourself to spend 30% of your income on discretionary purchases, such as gym memberships, magazine subscriptions, hobbies, pets, restaurants. If you are a 50/20/30 purist, this will also be the category that accounts for elected utilities such as phone, internet, and cable.

Don't Be Afraid To Flex The Ratios
When applied correctly, the 50/20/30 budgeting rule can be very effective. Please be aware, however, that these ratios are intended to be used more as general guidelines than strict rules. If your fixed expenses only takes up 40% of your budget, for example, you can allocate an extra 10% towards your financial goals or your discretionary purchases.

Contact First Bank Of The Lake To Set Up Your Savings Accounts!
If you are looking for bank at the Lake of the Ozarks to set up a savings account, retirement accounts, or any other financial accounts, we hope you'll consider First Bank of the Lake. Our financial experts are here to help you in any way we can. Stop by our branch at the entrance to the Outlet Mall to learn more about how we may be able to help you!

First Bank of the Lake - Striving For Excellence
Member FDIC. Equal Housing Lender.

Located at the entrance to the Osage Beach Premium Outlets!

4558 Osage Beach Parkway
Suite 100
Osage Beach, MO 65065

(573) 348-2265

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