One common method for creating a budget is the 50/20/30 strategy. This approach makes it simple by dividing your expenses into three categories: fixed expenses, financial goals, and flexible spending.
How it works
Take your total monthly income and divide it into the three categories below. If you can stick to this strategy you will have all of your expenses accounted for, be developing a solid financial cushion, and have a bit set aside to have some fun. The idea is to manage your money actively. Stay consistent. Know what you’re spending and what you’re saving, even if you need to adjust the percentages a bit.
Fixed expenses 50%
These unchanging costs should stay within 50% of your monthly income. Choose housing, transportation, and monthly subscriptions you can afford to sustain without draining your wallet.
Financial goals 20%
Twenty percent of your income should go toward your financial goals. Whether you’re looking a year or a decade ahead, or just building a good cushion to have in times of emergency, this is not money that is going out—it’s money you’re holding onto.
Flexible spending 30%
Limiting your optional expenses to a fixed amount will help you understand which of your wants are most rewarding, while also encouraging you to get the most bang for your buck in how you shop, eat, and play.