Three tips for spending smarter

Budgets can seem intimidating at first glance, in the same way a calculus problem was nerve-racking back in high school. The trick is filling in the blanks in terms of how much you need to save and spend each month. Once you do that, knowing how much flexible money you have will be a cinch.

One simple trick is dividing your income into buckets – try using the 50/30/20 rule, because it’s easy to follow:

• 50% of your income should go toward fixed costs (your needs)
• 30% should go toward flexible spending (your wants)
• 20% should go toward savings and debt repayments

50%: Fixed Costs

Start with your must-have monthly fees, such as mortgage/rent, utilities and student loans. Lump some of your “fun” fixed costs, such as gym payments and Netflix, in here because you pay roughly the same amount monthly.

Fixed costs should be no more than 50% of your total take-home paycheck. For those living in cost prohibitive cities like NYC or San Francisco, we realize that this may be hard to do, so accommodate as you must.

Smart Saver Tip: Are all your fixed costs really necessary? Do you really need to subscribe to Amazon Prime + Hulu + Netflix?

30%: Personal Spending (AKA Fun Money)

These are your variable expenses, like groceries, eating out, travel and entertainment. While food is obviously a staple, its cost can vary significantly depending on whether you decide to cook most of your meals or go out. The total personal spending amount should stay around the same each month, though the various items within this part of your budget can and will change month-to-month.

How can you calculate the right amount? Figure out the 70% you’re putting toward your Fixed Costs and Saving Goals first, then subtract from your net take-home pay.

20%: Savings Goals

If you can, put at least 20% of your take-home pay toward longer-term savings and financial goals like paying down credit card debt, making a down payment on a home and building up retirement savings.

Smart Saver Tip: Set up a recurring transfer from checking to savings so you don’t have to think about saving this 20%; your checking account can do it for you!

What does this look like in real life?

Laura is a 27-year-old who just started her second job. She lives in Austin and has student loans, but is able to live a pretty sweet day-to-day life while also saving for the future. Check out her budget below.

Her income: $45,000 a year

Her monthly take-home pay after taxes: $2,812 a month (if 25% of her salary goes toward a combo of taxes and her 401(k) contributions)

Fixed Costs:

• Two-Bedroom Rent (split): $600
• Transportation (car payment + insurance): $245
• Utilities (including smartphone, electricity, internet) $185
• Health Insurance: $130
• Student loan payment: $300

Total: $1,460, which is about 52% of her monthly take-home pay.

Personal Spending:

• $967, which is 34% of her monthly take-home pay.

Saving Goals:

• Extra Payments on Student Loans: $150
• Roth IRA: $225
• Emergency Fund: $75
• BFF Bachelorette Trip Fund: $50

Total: $500, which is about 18% of her monthly take-home pay. 

To start tracking your own spending and bucketing your expenses, check out Alliant’s Budget & Planning Tool within Alliant Mobile Banking or Alliant Online Banking.