How to create a budget

The most popular and widely recommended formula for budgeting is the 50/30/20 rule, which divides after-tax income into three main categories: 50% for needs, 30% for wants, and 20% for savings (which also includes extra debt repayment).[unfcu +4]

Core 50/30/20 Budgeting Formula

> Allocate 50% of net income to essential needs (housing, utilities, groceries, transportation, insurance, and minimum debt payments).[nerdwallet +2]

> Allocate 30% of net income to discretionary wants (dining out, entertainment, vacations, hobbies, non-essential shopping).[bettermoneyhabits.bankofamerica +2]

> Allocate 20% of net income to savings and additional debt repayment (emergency fund, retirement, investments, extra loan payments).[unfcu +2]

This formula provides a simple, effective framework that can be adjusted to fit different financial circumstances or goals, making it the most frequently endorsed starting point by financial experts and planners.[thrivent +2]

How to Use the Formula

Calculate your net (after-tax) monthly income, then multiply by each percentage to determine your budget for each category:

Savings/Debt = Net Income X 0.20

This budgeting approach keeps finances balanced while allowing for flexibility and financial progress.[nerdwallet +1]

Alternatives

If a different method fits your personality or cash flow better, consider:

> Zero-based budgeting: assign every dollar a job each month until nothing is leftunallocated.[thrivent]

> Envelope budgeting: use cash or checking accounts for each category; when it’s spent, that’s it for the month.[bettermoneyhabits.bankofamerica]

> The “no-budget” method: cover essentials and savings automatically, then spend the rest as wanted.[thrivent]

Overall, the 50/30/20 rule remains the most universally recommended and accessible budgeting formula for most people and situations.[unfcu +2]

This structure can increase confidence in covering bills, controlling discretionary spending, and building savings over time. Many people find that it makes budgets easier to stick to and offers flexibility if income or expenses change.[thrivent +2]

If help is needed customizing this for a specific situation, providing details like monthly income and debt can lead to a more tailored breakdown.[unfcu +2]

References 

United Nations Federal Credit Union. (2018). Budgeting basics: The 50-30-20 rule. Retrieved from https://www.unfcu.org/financial-wellness/50-30-20-rule/

NerdWallet. (2017). 50/30/20 Budget Calculator. Retrieved from https://www.nerdwallet.com/article/finance/nerdwallet-budget-calculator

Bank of America – Better Money Habits. (2025). Your guide to creating a budget plan. Retrieved from https://bettermoneyhabits.bankofamerica.com/en/saving-budgeting/creating-a-budget

Thrivent. (2025). 5 Types of Budgets, Examples & Who They’re Best For. Retrieved from https://www.thrivent.com/insights/budgeting-saving/types-of-budgets-5-most-popular-methods-examples-who-theyre-best-for

University of Pennsylvania, Student Financial Services. (2024). Popular Budgeting Strategies. Retrieved from https://srfs.upenn.edu/financial-wellness/browse-topics/budgeting/popular-budgeting-strategies

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