Living expenses: Rent or a mortgage are part of your essential living expenses.Here are some examples of essential costs you may have: Account for essential purchases Once you find your net income and calculate 50% of it, you can begin allocating that money toward essential monthly costs. Related: Average Monthly Income (And How It's Different From Net Worth) 2. Once you have your net income, you can calculate 50%, 20% and 30% of it to determine how much money you can spend on essentials, wants and financial goals each month. You then can divide this by 12 to determine your average monthly rate. For example, if you receive payment every other week, you can multiply your paycheck by 26 to determine your yearly income. If it doesn't, you can use how often you receive paychecks to determine your net income. If your paycheck lists what your yearly pay rate is, you can divide this number by 12 to determine how much you make per month. Find your monthly net income Your net income is how much money you have left over after taxes. Related: What To Include in a Budget How to apply the 50-20-30 rule Here are the steps to using the 50-20-30 rule when you're creating a budget: 1. This can help ensure you have enough money to pay for these situations without jeopardizing your ability to afford your basic needs the 50% covers. Sending a certain amount of your paycheck into a savings account can be a great start for people who want to create an emergency fund. Related: How To Become Financially Literate Want an emergency fund An emergency fund can help you avoid unpredictable financial problems, like medical issues or car problems, by giving you money to cover these unexpected expenses. For example, putting 20% of your monthly income toward paying off debt can help you raise your credit score and lower your credit card debt. Paying off these debts can help you start to save money and can benefit you financially in other ways. Related: 8 Budgeting Methods To Help You Reach Your Financial Goals Have debts to pay People who have a lot of student loans or recently bought a house or car can benefit from using the 50-20-30 rule. Using this can help people better understand where to spend money, and as they improve their financial skills, they can easily adjust this budget for their lifestyle. The percentages can be easy to calculate or plug into any spreadsheets you already use for your financial information. Using the 50-20-30 rule for your personal budget might be a good idea if you: Are new to budgeting Because the 50-20-30 rule is a simple budgeting concept, it can be a good choice for people who are new to creating a personal budget. This allows you to plan for every dollar you earn and create a budget you can follow easily.

This method allocates 50% of your after-tax income toward essentials, 20% toward financial goals, like savings or reducing debt, and 30% toward things you want. What is the 50-20-30 rule? The 50-20-30 rule, or the 50-30-20 rule, is a popular and relatively simple budgeting template many people use to help them plan how to use their money.

Living expenses budget