Page 11 - Equity Movement Magazine-Issue2
P. 11

BUDGET RESOURCE






     The 50/30/20 Rule of Thumb for Budgeting



     Elizabeth Warren's 50/30/20 rule can help you
     manage your budget.

     Paula Pant













































           ou’ve reviewed your spending and created a           So how does the 50/30/20 plan work? Here’s how
           budget, and now you know exactly how much            Warren and Tyagi recommend you organize your
     Yyou spend on your home, your car, discretionary           budget.
     spending, and how much you divert to your retirement
     accounts. That’s all good, but what about your other       Step One: Calculate Your After-Tax Income. Your after-tax
     savings, such as for an emergency? How does your           income is what remains of your paycheck after taxes are
     financial allocation compare to the amount you             taken out, such as state tax, local tax, income tax,
     should ideally spend and save?                             Medicare, and Social Security.
                                                                If you’re an employee with a steady paycheck, your
     Harvard bankruptcy expert Elizabeth Warren—U.S.            after-tax income should be easy to figure out by
     Senator from Massachusetts and named by Time               checking your paystubs. If health care, retirement
     magazine as one of the 100 Most Influential People in      contributions, or any other deductions are taken out of
     the World—coined the “50/30/20 rule” for spending          your paycheck, add them back in.
     and saving with her daughter, Amelia Warren Tyagi.
     They co-authored a book in 2005: “All Your Worth: The      If you’re self-employed, your after-tax income equals
     Ultimate Lifetime Money Plan.”                             your gross income less your business expenses, such as



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