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Does a budget like the 50-30-20 budget apply to students?
A budget plan is simply a guide for how to manage money and are not concrete things. Numbers can be changed to adapt to certain situations. Some students choose to work just enough to pay for college expenses, and that’s ok. A budget is meant to help you gain and maintain financial stability. If you’re in a situation where you still have most of your expenses paid for by your parents, then the numbers involved may look different. Perhaps you could save more than 20% of money you earn?
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Do I need to spend 50% of my money on needs?
No. First, a budget is simply a tool for helping you achieve and maintain financial health. It is not a law of the world. Think of the 50-30-20 rule more as a guideline in which you should aim so that no more than 50% of your income goes to needs and no more than 30% goes to wants.
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How do taxes play a role in budgeting.
For the majority of people in the US, taxes are taken out of your paycheck automatically. So, you do not need to budget for taxes. You base your budget on your after-tax or take-home amount. So, after your taxes have been removed, you build your budget around what you get post-taxes.
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Should I learn how to avoid taxes?
No. That’s called “tax evasion.” Taxes pay for education, roads, law enforcement, parks, sanitation, etc. Taxes are necessary for maintaining the benefits of living in a country like the US. There are legitimate ways to reduce what you pay in taxes, which we’ll cover in a later week.
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How does insurance play a role in budgeting?
For most types of insurance, you factor insurance into your budget as a need. The tricky one is medical insurance. If you get medical insurance through your employer, you likely pay a part of the premium (usually 25%) out of your paycheck automatically. You have a choice with this. If possible, you could think of that automatic insurance premium payment like a tax and use your post-tax, post-insurance pay for budgeting. However, you can also include the premium payment as a need. In that case, you would need to add what you pay in insurance premium to your after-tax pay amount and then build your budget, including medical insurance as a need. For example, if your after-tax pay is $2,000 each month and insurance is $200 each month (making your paychecks total $1,800), you could take $1,800 as your money used for budgeting, basing percentages off $1,800 and not including medical insurance in the budget. You could also take $2,000 as your pay (even though you only get paychecks totaling $1,800) and base percentages off that, but you need to make sure that the $200 is listed as a need in your budget.
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How do I stop my bank account from going negative?
If you can, pretend that $0 isn’t a balance of $0. Make a mental note that some amount, say $100, is effectively $0. That is, if you see your account approaching $100, you tell yourself you are out of money and can no longer spend until you have more. The more you earn/spend as life goes on, you’ll want that minimum number to be higher. Note that this minimum amount is different than a rainy-day or emergency fund.
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How do I get rich by making a budget?
A budget isn’t about accumulating wealth. It is about getting and maintaining financial health. The savings component of a budget will help with accumulating long-term savings or retirement, but it is not a way to get rich quick. However, sticking to a budget can help you get rich slow and steady, or at least help lift yourself out of poverty.
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There are some things I label as wants, but I can’t go a day without them. What should I do?
If you find yourself in a situation where you need to cut back on wants but your brain is really driving you to keep buying a certain thing, you may be looking at an addiction. It may be worth talking with someone at the Counseling Center about getting some tips to cut back.
