Budgeting made easy: The 50-30-20 rule
Certified Financial Planner Liz Miller joined TheStreet to discuss her simple budgeting formula.
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00:00If someone wants to create a budget,
00:04what is your advice for an easy plan that they can stick to?
00:10That's so great.
00:11You know, I can tell you as a professional,
00:13I have a million of these detailed spreadsheets
00:16that someone thinks you're going to hand to a client
00:19and say, write down for the next six months
00:21how much you're going to spend, right?
00:23And there are a few people who love that,
00:24but most people can't stick to that.
00:26What we say is a great starting point
00:28is to remember the 50-30-20 rule.
00:33See that money that's coming in that we talked about?
00:3550% of that should go to your essentials.
00:38Now, if you live in New York City like we do,
00:40that might be a little higher
00:41because housing costs are so high here.
00:43So if you're in a major city,
00:45don't worry if it goes a little higher than that,
00:47particularly when you're starting out.
00:49But 50% should be your rent or your mortgage
00:52and those fixed payments that you can't do anything about.
00:56Then 30% should be the things you choose to spend money on.
01:00How many streaming services do you want every month?
01:02Maybe you need to cut back on one or two, right?
01:05Going out with friends, what is weekly brunch cost?
01:08That's your 30%, all those ones where you're making choices.
01:11Do I go out this weekend or do I buy new clothes?
01:14And then 20% should be your target
01:16to be putting aside every month for savings.
01:20And some of that may be paying down debt,
01:22but some of it definitely should be funding
01:24your first account that we call an emergency fund,
01:26where you're building enough money
01:28that should anything happen unexpected,
01:30you've got some money put aside for those emergencies.