You have a budget, great! But what about your budget categories? Setting them up without losing your sanity can be a tall order. Having a budget is only the first step. You need to set up budget categories that are detailed enough to show you where your money is going but not so detailed that you go nuts trying to keep track of them all. Budgets are Personal Finance 101 No matter how little or how much money you have, everyone needs a budget. Every other aspect of successfully managing your finances are built on knowing how much money you have coming in, how much is going out and where it’s going. But there are so many ways to budget that it can be confusing. How many budget categories is too many? How many is too few? If a budget is too complicated, you’re unlikely to stick to it. You want a system that is simple and straightforward. The 50/30/20 method fits the bill. 50/30/20 This budgeting method is simple. You allocate your total budget at these percentages. We’re going to break down what expenses fall under each. And to be clear, the numbers you’ll be using are post-tax, so the amount of money you get in your paycheck each month, not how much you earn. And we recommend Mint for budgeting. It’s free and easy to use, and once you get your account and budget categories set up, Mint does most of the budgeting work for you. You can certainly just use 50/30/20 as your categories for the most straightforward system ever, but unless you have your finances on 100% lockdown, you probably need to expand out a bit. 50%: The Essentials The 50% represents the essentials in your budget, expenses like housing, hoa fees, utilities, transportation, parking fees, insurance premiums, and groceries among them. This also includes things like child care and child support. That these expenses are essential doesn’t mean we can’t reduce them though. We’ll cover that. Housing is the most significant expense for most of us so how much of the 50% should be devoted that and what exactly does “housing” encompass? “Housing should comprise 35 percent of your take-home income. That includes the mortgage or rent, all home repairs and maintenance, property taxes, utilities such as electricity, gas, water, and sewer, and homeowners or renters insurance. In short, it includes every housing-related expense.” That is one take on it, but it’s pretty unrealistic. I think it’s more realistic to budget that 35% just for your rent or mortgage payment. It might mean you have to tighten up in other areas of the 50% but housing isn’t cheap, and unless you take on a roommate, live really far from your place of work in the case of city dwellers or can live with your parents rent free, there aren’t a lot of ways around the high cost of housing. 30%: The Fun Stuff The 30% is to be budgeted on nonessentials, things that you spend money on but could live without (although the living might be pretty miserable). This percentage includes things like meals out, leisure activities, clothes (clothes are a necessity, yes, but presumably you haven’t been running around nekkid to this point, so you already have some), hobbies, and grooming. 20%: The Important Stuff This budgeting category too many people overlook, but it’s the most important. The 20% is for debt repayment, (if you have any) saving and investing. It’s easy to leave this category out and just tell yourself whatever is left over at the end of each month is the money you’ll put towards these things. But the problem is, when you don’t dedicate money to these areas up front, Learn more about your ad choices. Visit megaphone.fm/adchoices