Money is simply a means to an end and a well managed budget helps you achieve your end goal-whether that goal is paying down debt, buying a home, or long-term financial freedom.
One of the many lessons from the pandemic is the importance of an emergency savings fund and having a financial plan to guide you through rough times. Whether you are just getting started or rebuilding your emergency savings, putting together your budget and sticking to it, is the first step to building long-term financial security.
While budgeting is not complicated per se, staying on budget can be, which is why the 50/20/30 budget is an easy way to know your numbers and stay on track. The bottom line is that you can't spend more than you make. The concept is simple enough but hard to follow given the fact that our paychecks seem to be getting smaller and the cost of living is increasingly expensive.
Given that COVID has got everyone hunkering down at home, we hope that means you have been spending less and saving more, so now is a great time to revisit your budget. The benefit of the 50/20/30 plan is that it works for just about every budget and provides the flexibility to adjust for different financial situations and goals.
The basics of the 50/20/30 plan
Break your monthly income into three categories; Needs (aka fixed costs), Wants (flexible costs) and Goals (savings, retirement, emergency fund).
50% of your budget goes towards essential expenses. No, streaming TV and food delivered are not essential, but things like rent, insurance, groceries, student loans and utilities are.
30% of your budget is meant for you to enjoy. Remember, budgeting is not about deprivation, it’s about prioritizing where you spend your money. If you want your $10 avocado toast, go ahead, as long as you stay within your budget.
Pro Tip → Be careful not to spend outside of your 30% budget by using credit cards.
20% of your budget should be put towards financial goals like your emergency savings, an IRA or paying down debt. If you already contribute to your 401K then use this category to fund your emergency savings or investment account.
Pro Tip → If you are saving for a specific goal, you can lower the “wants” category to 20% and put 10% towards your other financial goals.
Use Pockets to build your 50/20/30 budget
Pockets can help you to easily visualize your budget and keep you on track. They’re quick and free to create.
3. Choose your Pocket name then tap “Create Pocket”
4. Tap “Add Money” to fund this Pocket from another Pocket or external account
Every Pocket has its own unique account number with the ability to create a unique virtual card per Pocket. You’ll be able to spend, using the unique virtual card, directly from that Pocket—no more worrying about overspending!
Pro Tip → Know where your money is going. Ideally you want to do a "look-back" every month to see where you spent your money. A look-back allows you to see where you are overspending (um...food delivery services), subscriptions (do you really need three streaming accounts?) and other places you can trim your budget (how much did you spend at that boutique plant store?!).
Tools to help automate your new budget
This feature allows you to create recurring transfers on a weekly, every other week, or monthly frequency either within a set date range or indefinitely. You can automate transfers between Pockets or between your One account and an external account.
After adding your direct deposit to your One account, activate paycheck Auto-Save to save 10% of your direct deposit (up to $1,000 a month). You’ll earn 3.00% APY* in the Auto-Save Pocket and quickly build up your emergency savings.
Automate putting a little aside every time you spend. Activate card Auto-Save to help chip away at a savings goal or to put money aside for emergencies. A little every day starts to quickly add up. You’ll earn unlimited 3.00% APY* in the Auto-Save Pocket when using card Auto-Save.