It is well documented that too many Americans do not have enough saved in case of an emergency. While it can be difficult to save money during a struggling economy, the importance of doing so cannot be overstated.
The task of budgeting can be overwhelming to some, but here is a simple method, called the 50-30-20 strategy that can help:
50 percent of your paycheck should go toward things you need
This includes all your essential costs, such as rent, mortgage payments, food, utilities, insurance, and debt payments. If your necessary expenses take up more than half of your income, you may need to either cut costs or reduce the amount that goes into your “wants” fund.
30 percent of your paycheck should go toward things you want
This includes anything that isn’t considered an essential cost, such as travel, dining out, shopping and other forms of entertainment.
20 percent of your paycheck should go toward savings and investments
Financial professionals typically recommend having enough cash in your emergency fund to cover between three- and six-months’ worth of living expenses. While all savings is good, it might be best to build up your emergency fund first, then concentrate on long-term investments.
There isn’t a one-size-fits-all approach to money management, but the 50-30-20 plan can be a good place to start if you’re not used to budgeting and are looking for ways to best use the income that you have.