Posted on Tuesday, February 5th, 2019 at 7:00 am
Having trouble sticking to a budget? There is a new method that could help you. It is called the 50/30/20 plan.
The plan was created by Help Me Hank, the consumer investigator for Local 4 News in Detroit, Michigan.
The concept of the of the 50/30/20 plan involves a simple breakdown. 50 percent of your income goes towards basic expenses. This can include important things like mortgage or rent, utilities, and groceries.
30 percent of the plan goes towards discretionary spending. That phrase refers to money spent by consumers on non-essential purchases such as vacations or luxury items. Discretionary income is the amount of money remaining after a person pays for personal necessities and taxes.
Discretionary spending includes the fun things in your life. This includes travel, vacations and hobbies. It also includes dining out at restaurants, bringing home take-out, or having food delivered.
The 20 percent part of the plan goes towards savings and paying off debt. There are two ways to use this part of your budget. One is to spend the 20 percent on a credit card debt, a student loan debt, or whatever other debts you have. It can be used to pay a medical bill that your health insurance refused to cover.
The other way is to put that 20 percent into your savings account. If you think you will be too tempted to spend that money on discretionary spending, there is a way to prevent it. Create an automatic transfer of 20 percent of your paycheck directly into your savings account.
Ideas like the 50/30/20 plan are especially useful for younger people who have plenty of time to save up money for their retirement.
People of any age can benefit from having an emergency fund. Most financial experts suggests that your emergency fund should be equal to at least six months of expenses.