Budget

50/30/20

Sen. Elizabeth Warren popularized this monthly budgeting rule:

50% Needs

30% Wants

20% Financial Goals

Needs: Rent, transportation, healthcare, groceries, etc.

Wants: Dining out, vacations, shopping, subscriptions, etc.

Financial Goals: Paying off debt (student loans count!), emergency savings, investing, etc.


Generally we're fans, but we're also here to remind you of the main goal: saving for a rainy day.

Everyone's spending pattern is different and hard numbers can be a turn off when your spending allotments don't align with some financial planner's. You know it's hard to maintain this type of budgeting when rent is $1200 for you and 42 of your roommates. However, it can be helpful to see an example budget and mold it to your lifestyle.

If you are comfortable month-to-month, we'd recommend thinking in order of 20/50/30. Make Financial Goals nonnegotiable - and then budget the rest. However, do not let this discourage those of you who have debt or childcare costs. Budget for what you can.

Above all, a budget is setting goals to aim for - without goals, you'll never know if you're on the right track.

  1. 20% - Financial Goals

    1. Debt: Understand how much you absolutely must pay monthly, including student loans, credit card debts, personal loans, etc. and calculate what % of your monthly post-tax income that is.

      1. If the amount exceeds 20%, put your focus here. It might be unintuitive that you aren't seeing Financial Goals money grow, but you are still budgeting correctly.

      2. You'd be correct in that your goal is to always minimize the % of your monthly post-tax income allocated to mandatory payments. How do you get there? Pay it off (which is what you're doing) - and most importantly, do not take up any more debt!

    2. Savings: Initially, aim to save 20% minus mandatory payments.

      1. See Saving

  2. 50% - Needs

    1. Rent: Financial planners suggest ~25% of your income towards rent, but sometimes that's not realistic. We think 30% of pre-tax income should be the absolute high-end of what you should budget. Sometimes roommates are nonnegotiable to sustainably live in the East Village.

    2. Transportation: The beauty of NYC is that you can live car-free. Let's say ~$130 for a monthly subway pass and ~$30 for emergency taxi fares.



So, let's breakdown a budget of someone who lives in NYC on a $50,000 salary as an example.

(Why NYC? It's freaking tough to survive out there - so let's plan for the worst, so that we can hope for the best)


Pre-tax Income: $50,000

Post-tax Income: $37,500 (we're using 25% tax as an example - this will vary)

Monthly Take Home: $3,125

Note: We notice that sometimes budgets don't specify pre- or post-tax. For everything outside of rent (and employer retirement benefits, if offered to you), we will calculate our budget post-tax.


Needs

Rent: $1250

Transportation: $175

Groceries: $300 - more here so that you can dine out less

Healthcare: $150 - some for co-pays, some for prescriptions, and you know what - we think gym memberships are healthcare

Personal Care Products: $50 - we're talking shampoos, not jade earrings

Wants

Entertainment: $250 - dining out, movies, bars, it's NYC after all

Vacation: $250 - you might not always be able to escape on this monthly budget, but imagine a 3-monthly trip of $750!

Self-care: $75 - consider this your slush fund, shopping, haircuts, etc.

Financial Goals (see Saving)

Loan Payments: $500 - Student Loans: we hate this as much as you do, however, we believe that loan repayments are a part of the 20%

Employer Retirement Benefits (e.g. 401k, 403b, TSP, etc.): $75 - take advantage, you'll save $100 monthly pre-tax for retirement, more on this in Saving

Rainy Day Fund: $50 - it's not a ton, but let it accumulate for an emergency