It can be a challenge to stick to a budget. NerdWallet wants to set you up for success by helping you create a realistic budget that accounts for all of your expenses.
We advocate the 50/30/20 method as the best way to spend your money responsibly.
Use our calculator to estimate how you should divide your monthly income into needs, wants and savings.
What is the 50/30/20 rule?
Start with your take-home income, devote 50% of that figure to necessities, 30% to wants and 20% to savings. Here’s how it breaks down:
- Monthly after-tax income. This figure is your income after taxes have been deducted and the cost of payroll deductions for health insurance, 401(k) contributions or other automatic savings have been added back in.
- 50% of your income: necessities. Necessities are the expenses you can’t avoid. This portion of your budget should cover costs like housing, food, transportation and insurance.
- 30% of your income: wants. Wants are the extras that you spend money on for fun or enjoyment. They include entertainment, travel, extracurricular activities and memberships.
Start with your take-home income, devote 50% of that figure to necessities, 30% to wants and 20% to savings.
- 20% of your income: savings and debt. Savings is the amount you sock away to prepare for the future. Devote this chunk of your income to paying down existing debt and creating a comfortable level of funds to avoid taking on future debt.
For more budgeting advice, review our tips for how to build a budget.