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Budgeting Basics and our Post-Grad Packet Thumbnail

Budgeting Basics and our Post-Grad Packet

Graduating college and entering into the real world can be scary. Many of our clients have loved ones who feel confused during this stage of their lives. They struggle with learning how to set their own budget, obtaining a steady income, and navigating employee benefits like stock options and 401(k) plans.

To be honest, even some of our senior clients have questions about these things.

To help, we designed a holistic guide to navigating the world of adulting geared towards recent college graduates called the Post-Grad Packet. In it, we cover three main aspects of financial health that we feel young adults need to be aware of; job searching, budgeting ( including student loan financing), and how you can live The Good Life.

Below is an article from our Post-Grad Packet on the popular 50/30/20 Budgeting Rule by Jennifer Calonia. We think this is a great refresher on budgeting basics for everyone, not just recent graduates.

When you're ready to download the packet, which includes many more helpful tips like these, let us know by filling out the form below. We'll send it your way

The 50/30/20 rule is a budgeting approach that distributes your finances toward different goals in a simple and practical way. Popularized by U.S. Sen. Elizabeth Warren, 50/30/20 budgeting helps you figure out how much money to set aside for your monthly needs, wants and savings goals.

The 50/30/20 rule helps you organize your budget with the big picture in mind. If other budgeting methods — like tracking every expense — discourage you, this can be a good option. 

To start, calculate your after-tax income. Employers generally withhold federal income, Social Security and Medicare taxes from employee paychecks. (State income taxes may also be withheld depending on where you live.) With the 50/30/20 budgeting rule, it’s important to note: Other paycheck deductions — whether retirement, medical, dental, vision or something similar — should be added back to your after-tax income calculation.

Now that you have your after-tax income handy, you’ll further break down your expenses using the 50/30/20 budget:

  • 50% on needs
  • 30% on wants
  • 20% on savings

50% Needs: These recurring costs are essential to keeping a roof over your head and having a functioning household. The reason these must-haves occupy 50% of your income is twofold. It ensures that you can sustain your essentials. For example, if an apartment with rent that’s $2,200 pushes your monthly needs budget beyond 50% of your after-tax income, it’s an indication that you may need to settle on a cheaper place to live. A 50% budget for must-haves also protects you in moments of financial uncertainty. Although your income may be stable now, an unexpected layoff or disability could suddenly cut your pay dramatically. By maintaining a modest needs budget, you’re in a safer financial position.

30% Wants: Dedicating funds for non-essentials that you want gives you just enough to enjoy the money you’ve earned. Purchases that can be classified as wants include:

  • Luxury pairs of shoes
  • Fitness memberships
  • Netflix subscriptions
  • Vacations
  • Weekly happy hours with friends

However you want to use this “fun” budget is up to you, as long as you stay disciplined in capping your spending in this category to 30% of your monthly after-tax funds.

20% Savings: In the savings category, you’re working toward allocating 20% of your monthly income toward long-term planning and goals. This often includes:

  • Saving toward an emergency fund so you have a cushion in the event of unforeseen financial hardship
  • Putting aside money in a retirement account
  • Directing funds toward investments
  • After building a rainy-day fund, you might also consider using the remaining 20% of this category toward paying down your debt. For example, in addition to setting aside minimum payments in your needs budget, you can get rid of debt faster by making extra payments toward debts.

FAQ: 50/30/20 rule

Do 401(k) contributions count in 50/30/20 rule calculations? Yes, 401(k) contributions are included in the 50/30/20 budget planner under the 20% savings category.

Are there 50/30/20 budget apps that can help? If you’re looking for a 50/30/20 budget app, one option is the Moneywyn Personal Finance App. The free budgeting app is available for iPhone users in the Apple App Store.

Are there 50/30/20 calculators available? Some financial institutions offer 50/30/20 calculators to help you budget your money using this approach. For example, Northeast Credit Union and Georgia United Credit Union provide simple 50/30/20 budget calculators. Enter your monthly after-tax income to see how much you have for each category..

That's just one of the many articles you'll have access to when you download our Post Grad Packet. Fill out the contact form below and we'll send it straight to your inbox. From there, you can keep it for yourself or pass it on to a loved one.

Remember, you and your loved ones always have access to our financial advisors if you have questions. Just give us a call 612-492-0211

This information is provided by Voya for your education only. Neither Voya nor its representatives offer tax or legal advice. Please consult your tax or legal advisor before making a tax-related investment/ insurance decision.