Budgeting made easy: The 50-30-20 rule

Certified Financial Planner Liz Miller joined TheStreet to discuss her simple budgeting formula.

Transcript

00:00If someone wants to create a budget,

00:04what is your advice for an easy plan that they can stick to?

00:10That's so great.

00:11You know, I can tell you as a professional,

00:13I have a million of these detailed spreadsheets

00:16that someone thinks you're going to hand to a client

00:19and say, write down for the next six months

00:21how much you're going to spend, right?

00:23And there are a few people who love that,

00:24but most people can't stick to that.

00:26What we say is a great starting point

00:28is to remember the 50-30-20 rule.

00:33See that money that's coming in that we talked about?

00:3550% of that should go to your essentials.

00:38Now, if you live in New York City like we do,

00:40that might be a little higher

00:41because housing costs are so high here.

00:43So if you're in a major city,

00:45don't worry if it goes a little higher than that,

00:47particularly when you're starting out.

00:49But 50% should be your rent or your mortgage

00:52and those fixed payments that you can't do anything about.

00:56Then 30% should be the things you choose to spend money on.

01:00How many streaming services do you want every month?

01:02Maybe you need to cut back on one or two, right?

01:05Going out with friends, what is weekly brunch cost?

01:08That's your 30%, all those ones where you're making choices.

01:11Do I go out this weekend or do I buy new clothes?

01:14And then 20% should be your target

01:16to be putting aside every month for savings.

01:20And some of that may be paying down debt,

01:22but some of it definitely should be funding

01:24your first account that we call an emergency fund,

01:26where you're building enough money

01:28that should anything happen unexpected,

01:30you've got some money put aside for those emergencies.