Still in the process of crafting the perfect budget before moving into your dream apartment? Getting ahead of your finances is a great life skill, and budgeting is a crucial step. If you aren’t sure how much your monthly expenses should be, we’re here to break it down for you. We will use the 50/30/20 rule to guide your expenses. This financial rule of thumb suggested by United States Senator Elizabeth Warren essentially gives you a framework of where your money should go.
These are the expenses that are absolutely necessary for you. Necessities include things like your rent, utility bills, groceries, car payments, student loans, and any other outstanding debts. While Netflix may seem necessary for you, it is not part of this category. If you’re still apartment hunting and not sure how much rent you can afford, try using a rent calculator, and stick to the 30% rule.
Plan on dedicating 50% of your paycheck towards these necessary living expenses. This number may need to increase depending on if you live in a city where cost burden rates are high.
Eyeing a new loveseat to pair with your sofa? Ready to add Hulu to your arsenal of streaming services? These expenses would fall under the “wants” category. Renters living in the middle of downtown areas might be tempted with the plethora of dining and entertainment options, but 30% is the recommended guideline for discretionary spending. If your rent payment is relatively low and you have taken care of high-interest debt, you may have the bandwidth to splurge on the wants.
The remaining 20% of your paycheck should be dedicated to building long-term financial wealth. Starting to save, invest, and contribute to your retirement plan when you are young can pay huge dividends. It’s highly worth it to get started sooner rather than later. Use a portion of this 20% to establish an emergency savings fund. Wells Fargo recommends having enough of an emergency savings fund to cover three to six months of living expenses.
This rule is simply a guideline to consider when your paycheck hits the bank. Try calculating how much money you will have for wants by taking 30% off of your next paycheck. This will give you a good idea on whether or not you are overspending in this category. Remember, all of these may fluctuate a bit depending on your financial situation.