Budgeting can feel like the grown-up equivalent of homework -- time-consuming and far from fun. But without a budget, people can end up stretched to their financial and emotional limits. "Just like we try to do too much with the little time we have, we try to do too much with the money we have," says Liz Weston, financial columnist and author of the new book The 10 Commandments of Money.
The right budget -- let's call it a spending plan -- can eliminate that problem. Weston advocates the 50-30-20 plan, developed by Elizabeth Warren, a Harvard law professor and consumer protection champion. The plan is easy to understand, simple to apply, and leaves plenty of room for enjoyment. "Once you get this budget set up, your life is going to run a little more smoothly," Warren promises.
- Half goes to needs: Expenses that can't be put off without consequences, such as the rent or mortgage, utility bill, health insurance, minimum loan payments.
- A full 30 percent goes toward wants: Think dinners out, trips, a new handbag.
- The final 20 percent goes to savings or debt repayment. If needs add up to more than half of your income, you have two choices: Figure out ways to lower those costs by adjusting your phone plan or even downsizing your home, or reduce the amount you spend on wants -- not savings -- to make up the difference.
"Very few of us can live with a very austere spending plan," Weston says. "This is balanced. Not every dime you make is going out the door before you have a chance to have any fun."
Action tip: Block off an hour to sit down, go over your finances, and come up with a spending plan.
Continued on page 2: Get Specific About Saving.
Top Brands
Related Links
