Who Needs a Budget? Well, Everyone—Even You!
What you'll learn
- Why a budget can help you reach your goals
- A simple plan to create and stick to a budget
- How to prioritize your needs, wants, and savings
As the saying goes: "A goal without a plan is just a wish."
So, now it's time to plan. And when it comes to your money, that means creating a budget.
What's a budget?
Do you have money to spend each month from things like your allowance or a part-time job?
A budget helps you figure out the best way to use that money. Then, you can save for things you want, buy the things you need, and still have some left over for fun stuff.
If you've never tried it before, creating and following a budget can be eye-opening. Do you know how much you spend each month on things like boba or takeout? You might be surprised!
If you've never tried it before, creating and following a budget can be eye-opening.
Getting a grip on where your money goes can also help you make smarter choices. That’s especially important when your goals get bigger and more expensive—like wanting a new laptop or even a car.
There are tons of budgeting strategies out there, but one good option could be the 50/30/20 rule.
How the 50/30/20 rule works
A budget is usually divided into three categories: needs, wants, and savings.
Following the 50/30/20 rule helps you figure out how much of your monthly cash should be used for each category:
| Things you need | Things you want | Savings |
|---|---|---|
| 50% | 30% | 20% |
Savings get first dibs
Even though it's at the end of the rule, start with savings. That means putting 20% of your money into a dedicated savings account before you spend a single dollar on anything else.
Think of it as "paying yourself first." It helps make sure that your goals are the top priority.
What if I have more than one goal?
You aren't alone!
Maybe you have two goals: buy concert tickets and save up for your first car. One approach would be to split your savings budget in half. You could put 10% toward the tickets and the other 10% toward your car.
Once you reach your first goal, you can add that extra 10% to your next goal—or start saving for a new one.
Put your needs next
OK, what you consider needs can be a little subjective. Do you need a new pair of Jordans? Or a Twitch Turbo subscription?
When it comes to budgeting, your needs are the essentials. That means pretty much anything required for your survival and well-being, plus anything that must be paid. Things like groceries, clothes, your cell phone bill, and gas for your car are all needs.
If you still live at home, you might not have a lot of needs you pay for yourself yet. But it's still good to know how much of your budget should cover these costs. Once you head to college or move out on your own, those will come out of your pocket.
Added up, these expenses shouldn't cost more than 50% of your monthly earnings.
What if I can't afford all my needs?
If you're spending more than 50% on needs, think about how you could save some money. Can you find a cheaper cell phone plan? Or take the bus more often?
What if you cut down your essentials to the bare minimum and they still cost more than 50%? It might be time to look for ways to earn extra cash. Are there bigger chores you can do around the house? Can you find a higher-paying after-school job?
What if your expenses cost less than 50% of your pay? That's awesome! Having extra money is always a nice problem to have. Think about using some of that cash to boost your savings. That will help you reach those future goals even faster.
Wants are important, too
We get it. It can be super-hard to stick to a budget that doesn't allow for any fun, which is another reason many people choose the 50/30/20 rule. It's realistic!
The wants category includes things you don't necessarily have to have but would like to have. Monthly music subscription? That’s a want. Eating out with friends? That’s a (delicious) want, too.
Buying gifts for friends and family would also be part of this budget. The same goes for donations to a friend's fundraiser.
It's easy to overspend on the wants. That money seems to go so quickly! That's why it's good to have a guideline to follow.
Knowing you should spend only 30% on these types of things may motivate you to be a little more thoughtful about where your money is going.
What if I want all the things?
If your wants are hard to resist, think about little hacks to help keep you on track.
Maybe use a picture of your long-term goal as your home screen wallpaper to remind yourself every time you're tempted to shop. Or install a coupon extension on your web browser to get notified of deals when you buy something online.
Every dollar you save is a dollar you can put toward your goals!
Practice makes perfect
Getting the hang of budgeting might take a minute, just like learning anything new. But once you start, you'll see how much easier it gets to reach your goals.
Quiz
1. What's the first thing you should do when you get your paycheck or allowance?
A. Pay your cell phone and Spotify bills
B. Put 20% into your savings
C. Get takeout for dinner!
Answer: B | Remember: Pay yourself first! This is the money that is going toward your goals, which can change over time. When you treat your savings like your most-important expense, you're less likely to splurge on stuff you don't need.
2. You keep overspending on needs. Which of these could help bring your costs down?
A. Finding a less expensive cell phone plan
B. Spending less money on the clothes you buy
C. Eating out less often
D. All of the above
Answer: A | A cell phone is considered a necessity, whereas buying clothes and eating out are wants. To help reduce your bill, see if you can cut down on your data usage or find a cheaper carrier.
3. True or false? If you earn more money, you can spend more than 30% of it on wants.
Answer: False | Following the 50/30/20 rule means you always limit spending on wants to 30%. Of course, 30% of $200 is more than 30% of $150. So, earning more money does mean you get to spend more on your wants. Just remember to keep paying yourself first by setting aside 20% of your new income for savings. Getting a raise means your goals get a boost, too!
Your next steps
- Write down all the things you spend money on. Then decide which expenses are needs and which ones are wants.
- Figure out how much money you make each month. Then calculate how much you can afford to spend on needs, wants, and savings based on the 50/30/20 rule.
- Stick with us to learn more about creating smart saving and spending habits.