Seniors: buckle up. If your parents and/or FAFSA are cutting you off any time soon, you will need to learn how to manage your money yourself. The 50/30/20 rule is a great starting place for first-time budgeters because it is a simple way to make sure your spending habits are on track with generally acceptable benchmarks. Using this philosophy, your income should go towards 3 main buckets:
50%* of your income should go to NECESSITIES.
- Necessities are living expenses such as:
- Transportation (gasoline, Uber/Lyft, public transit)
- Minimum payments on debt
- Your rent or mortgage payments should be no more than 30% of your income.
*If your necessities require more than 50% of your income, dip into the next bucket…
30% of your income can go to DISCRETIONARY EXPENSES.
- Any “fun” purchases are considered discretionary expenses:
- Eating out (restaurants, fast food chains)
- Entertainment (concerts, sporting events, streaming music/video)
- Hobbies (art supplies, books, sporting equipment, gym membership)
- Traveling (airfare, hotel)
20%** of your income should be SAVED or put towards PAYING OFF DEBTS.
- The earlier you start saving, easier it will be to achieve financial security and achieve your financial goals:
- According to Dave Ramsey’s “7 Baby Steps,” start an emergency fund by working up to $1,000 in a savings account.
- Financial planners recommend saving 3-6 months’ worth of expenses in a savings account.
- If you don’t have very stable employment, perhaps this number should be higher for you. Your needs depend on your situation!
- Student Loan/Other Debt Repayment
- Find out what your monthly student loan payments are going to be by looking at the Federal Student Aid website and using their repayment estimator.
- Use our student loan repayment estimator worksheet to see how much of your income you need to put towards your student debt.
- Use your credit card like a debit card; only charge purchases you know you can afford. Pay off your credit card in full every month and start chipping away at your total balance.
- For someone starting young (ages 25-35), the industry-recommended benchmark to shoot for is 10-13% of your gross pay toward retirement accounts.
- A peer financial counselor can help explain to you all the different types of retirement accounts!
- Financial Goals
- Whatever is left over can be used to achieve your own personal goals.
- Use the S.M.A.R.T. acronym to remember how to set good financial goals: specific, measurable, attainable, realistic, and time-bound.
- Example: “I want to have $20,000 in my savings account at the end of five years so I can put 20% down on a $100,000 house.”
**Like before, if your debt repayments require more than 20% of your income, dip into the discretionary expenses bucket.
This method, and other methods of budgeting, will look different for everyone. Make an appointment with Powercat Financial today at www.ksu.edu/powercatfinancial and we can help you fill out a spending plan specific to your unique situation!
Abby Pope, Peer Counselor II
302 K-State Student Union, Third Floor
918 N. 17th Street
Manhattan, KS 66506-2800