50 - 20 - 30 Budget Rule

50%: Needs

In this Need category are those bills that you absolutely must pay and are the things necessary for survival. These include rent or mortgage payments, car payments, groceries, health care, minimum debt payment, and utilities. These are your "must-haves" including items that you are contractually obligated to like debt payments or bills.

Half of your after-tax income should be all that you need to cover your needs and obligations. If you are spending more than that on your needs, you will have to either cut down on wants or try to downsize your lifestyle, perhaps to a smaller home or more modest car. Maybe carpooling or taking public transportation to work is a solution, or cooking home more often.

30%: Wants

Wants are all the things that are not absolutely essential but you spend money to have them. Your lifestyle is important and although you may need to sacrifice some luxuries. Therefore, 30% of your income goes to personal expenses like travel, dining out, cable, and even expensive coffee. It is up to you to decide which items are considered personal and which you should cut-off.

20%: Savings

Finally, try to allocate 20% of your net income to savings and investments. This is for your future, for everything unexpected that may come your way. You should have at least 3 months of emergency savings on hand in case you lose your job or an unforeseen event happens.