Knowing when to spend and when to save isn’t always easy. If you’re not sure where to start, the 50-30-20 rule is a pretty standard breakdown of your finances.

The 50-20-30 Rule helps you build a budget by using three spending categories:

• 50% of your income should go to living expenses and essentials. This includes your rent, utilities, and things like groceries and transportation for work.
• 20% of your income should go to financial goals, meaning your savings, investments, and debt-reduction payments (if you have debt, such as credit card payments).
• 30% of your income should be used for flexible spending. This is everything you buy that you want but don’t necessarily need (like money spent on movies and travel).

Keep in mind that the percentages for essentials and flexible spending are the maximum you should spend. Falling under those guidelines can leave more money for other financial goals.

How to start a 50-20-30 budget

Figure out what’s currently happening with your finances. First, look at your pay stubs to determine exactly how much money you bring home each month. That’s your income and what you’ll base your 50-20-30 split on. (If you’re self-employed, be careful to track your earnings and understand your average income per month so you can budget accordingly.)

Next, track you’re spending. Yes, that means keeping up with every last cent, from the big stuff such as rent to the Starbucks coffee that you grab on the way to work. Then divide your spending into one of the three categories: essentials, financial goals, and flexible spending. From here, adjust your spending to ensure you’re falling into the 50-20-30 parameters. If you’re overspending on stuff you want but don’t need, it’s time to cut back to save more.

Adjust anytime you need to
Good news: the 50-30-20 rule is a guideline that you can adjust as you go. For example, you might consider switching out the percentages if you’re stuck with expensive rent or a ton of payments. “The 50-30-20 rule can be altered if you are in extreme debt, such as owing more than $50,000.” Well If this is you, it’s time to try to putting a higher percentage toward payments and a smaller percentage toward your wants for a while.” Keep in mind it is temporary goals to gain financial freedom.

Set a savings goal and stick to it
Ready to follow the 50-30-20 rule and regularly put a set percentage of your paycheck into savings? Jennifer says, automating it can be a huge help. “Your only job is to log into your bank account, pick a date and amount to regularly transfer, and sit back and relax. Saving won’t have to be something you think about when it happens automatically.”

Now Let’s Say 50/30/20 Is Not for Me

Let’s remember: If you’re making $900 a month and carrying student loan debt(s).

Spending 50% of your income ($450) on rent and food just isn’t possible. And the suggestion to pay 30% of your paycheck on personal expenses was crazy! That would have keep you in debt longer. Worse, it would encourage you to keep the already lousy money habits.

So, if your debt and low income are negatively impacting every area of your life. Then what you need are financial tools to get you out of the hole you’re in, and stop permitting yourself to continue treating yourself and stop living outside your means.

You don’t want to set up a budget like the 50/30/20 rule that drags the debt out. You want to chuck the debt entirely and focus on your future energy on growing your wealth. So what you need is a drastic change to eliminate this debt ASAP.

The Debt Avalanche Method

Your goal will be twofold. You will need to cut your spending and increase your income. After all, there’s only so much budgeting you can do on $900 a month. It may work better in the end for you to choose the debt avalanche method. This method advises you to pay off high-interest debts first to pay down your remaining debt worth of loans.

So to do this, you will ruthlessly need to cut your budget to free up funds. Try to eliminated all eating and drinking out and stop buying meat at the grocery store. Try hosting a clothing swap instead of buying new clothes. Also, try to be very simple with holidays and birthday’s with friends and family a card is just fine.

Remember you can always ask for a raise at your job, and try to pick up a part-time job. A side hustle is my religion. Between 2016 and 2018 I worked as a customer service representative from home, cleaned office/homes.

Compound Interest

Another great way to get ahead which in what I now see as a stroke of brilliance, you can also open up a Roth IRA account. If you put in $500, which can be a huge chunk of money for some. Yes, you will still be in debt, but you can learn about how to make money work for you in the long term. You will learn that investing is the key to building wealth. As much as you need to pay down your debt, you will also need to start having your money earn money. Investing favors the young, and you will need to get going.

In the end, your budget breakdown can be 70% toward debt payoff and 30% toward bare-minimum living expenses. It is extreme, but it will produce extreme results for example:

• If in 2018 you make $15,000 total. That same year you also pay off $2,000 worth of debt.
• By June 2019, you paid off all your student loan debt/credit card debit.
• Between 2018 and 2019, you doubled your income.

Becoming financially literate can change your life trajectory. If you could pay off $25,000 worth of debt without ever making more than $30,000 a year, what couldn’t you do?

You could start investing. You could start a business. Money is just a language, and you can learn it at your own pace, you can start beginning to speak it.

You can invest $5,500 (the maximum amount allowed) into a IRA. A year last you did the same thing, and that’s the plan again for that year. Your finances will invigorate you, instead of making you anxious. You can be excited to manage and grow your wealth consciously, but this would never have been possible if you don’t tackle your debt as aggressively.

How has the 50-20-30 Rule worked out for you? Or not worked out for you? Share your experiences in the comments!