So how do you determine how much of your income should you put into a savings account? Start with creating a budget. Why? Creating a budget is like making a map to help you reach your savings destination and achieving your goals. You will see how much you need to live and what is leftover. There is a basic, simple savings formula. Have you heard of the 50/30/20 rule?
For now, let’s do a quick budgeting overview.
50/30/20 Budget Plan
Percentages are based on net income (after all taxes and payroll deductions)
50% Basic Essential Needs
• Housing
• Utilities
• Food
• Transportation
30% Your Wants
These are items you could potentially live without. It may not be the easiest decision to live without some of these items, but they are not detrimental to your survival.
• Entertainment
• Hobbies
• Pets
• Devices (e.g.computers, cell phone)
20% Savings
• 10% for an emergency fund
• 10% for the future
Sample Budget (Based on $2,700 Monthly Net Income)
Wants, Needs and Savings |
MONTHLY BUDGET |
% OF TOTAL |
Home |
$825 |
31% |
Utilities |
$150 |
6% |
Food |
$325 |
12% |
Transportation (bus pass) |
$50 |
1% |
Health Insurance (state assistance) |
$0 |
0% |
GRAND TOTAL OF NEEDS |
$1,350 |
50% |
Cell phone |
$100 |
4% |
Internet |
$100 |
4% |
Dining out |
$150 |
5% |
Cable/ streaming service |
$150 |
5% |
Entertainment |
$100 |
4% |
Clothes, haircuts, and incidentals |
$150 |
6% |
Miscellaneous |
$60 |
2% |
GRAND TOTAL OF WANTS |
$810 |
30% |
Savings – Emergencies |
$270 |
10% |
Savings – For the future |
$270 |
10% |
GRAND TOTAL OF SAVINGS |
$540 |
20% |