How to make a budget you’ll follow

3 MIN READ | #blog

“Why can’t I stick to a budget?” is a common complaint. After all, a budget is just a plan for spending your money. A guide to help you stay within your income while paying for what you need and saving for what you want. And with 80% of Americans using some form of budget in 2021, more and more people are recognizing how useful they can be.1

Here’s the thing: a budget doesn’t have to be highly detailed to work for you. In fact, the simpler your budget, the more likely you are to follow it.

The 50/30/20 plan

One way to simplify your budget is to plan it using the 50/30/20 rule. It’s a customizable recipe for living within your means, staying out of unwanted debt and having confidence in your financial well-being. Following this plan, each month you allocate 50% of your take-home dollars (after-tax income) to your mandatory needs (e.g., housing, utilities, groceries, insurance and transportation), 30% to wants (e.g., eating out, travel and entertainment) and 20% to savings.

Let’s say your take-home pay, after taxes, is $4,000 a month. Under the 50/30/20 rule, you would split your money like this

  • $2,000 for mandatory expenses
  • $1,200 for things you want but don’t absolutely need
  • $800 to savings

Don’t starve your emotions

In addition to its simplicity, the success of the 50/30/20 rule stems from the fact that it builds in discretionary dollars for things that make life enjoyable. A budget that doesn’t allow you the occasional treat — say, getting a morning latté and muffin at the coffee shop or going to concerts occasionally — may be hard to sustain over time. In fact, extreme financial austerity can unleash a harmful counter-reaction, where you pile up debt on emotion-driven purchases because you’re stressed out from trying to stick to your budget.

Making hard decisions

Remember that the 50/30/20 is customizable. If the cost of your necessities exceeds 50% of your take-home pay, you’ll have to shift funds from your discretionary spending “bucket” to cover the shortfall. And that makes sense. This budget forces you to get real about your actual living expenses. If your rent is sky-high relative to your income, you probably shouldn’t order take-out three times a week. The budget may even lead you to make some hard decisions about your living arrangements or income sources.

Dial up or down

The plan is simple but still flexible. Let’s say you want to save for a down payment on a new home. To reach your goal sooner, you could beef up your savings contribution to 30% of your net income and dial back discretionary spend to 20%. Or even, 40/10% if you’re very, very disciplined. Beware of getting too stringent — remember that having fun occasionally will help you stick to your budget.

Start with a financial snapshot

The first rule in how to budget: Don’t guesstimate your cash flow. Get the real numbers on how much money you have coming in and going out each month. Start by reviewing six months of bank and credit card statements to identify your sources of income and your expense trends. That will help you separate your expenses into the correct categories and see how the percentages work for you.

Prioritize protection

One important component of your mandatories is protection. This means having the right mix of insurance to protect yourself and your loved ones, through things like life insurance, disability insurance and more. By prioritizing protection, you can prevent many of the unexpected expenses that can cause you to draw on your emergency fund or even force you to take on debt.

Pay yourself first

At minimum, you should save 20% of your income. It’s part of a useful concept called ‘paying yourself first.’ Paying yourself first means to prioritize your long-term financial well-being as part of your budget — giving it as much attention as covering your expenses. The first thing to look at: building an emergency fund. Monthly contributions to this fund will help protect you financially against unexpected costs, such as car repairs, medical bills and emergencies. Experienced professionals typically recommend having enough emergency savings to cover your living expenses for six months, but even this may not be enough. The ideal is to save the equivalent of one year’s income. With a robust emergency fund sitting in your bank, you can feel more confident in your ability to weather whatever life throws your way.

Avoid expensive surprises

Don’t get blindsided and blow your budget by higher-than-expected discretionary spending during a given month. More and more people are using mobile budgeting tools on their smartphones and tablets. According to a USA Today report, individuals who use budget apps frequently, at least once a day, say the tools make them less likely to overspend.2 Consider finding a budgeting app that works for you.

Review and get feedback

Lastly, review your budget periodically to make sure it continues to fit your lifestyle needs and financial goals. And you may find it helpful to consult with a financial professional. They can look at your numbers and help you fine-tune your plan for even greater financial confidence going forward.


Brought to you by The Guardian Network © 2022.  The Guardian Life Insurance Company of America®, New York, NY 

2022-147648 Exp. 12/2024

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