LEAVE 30% FOR WANTS
Separating wants from needs can be difficult. Needs are essential for you to live and work. Typical wants include dinners out, gifts, travel and entertainment. It’s not always easy to decide: Are organic groceries a want or a need? How about house cleaning services or food delivery? Decisions vary from person to person. If you want to get out of debt as fast as you can, you may decide your wants can wait until you have some savings or your debts are under control. But your budget should include fun money. If it’s too strict, it’s harder to stick with. COMMIT 20% TO SAVINGS AND DEBT PAYDOWN Use 20% of your after-tax income to put money away for the unexpected, save for the future and pay off debt balances (paying more than minimums). Think about your biggest money goals and use this part of your income to reach them. BEST WAY TO BUDGET The best way to budget is one you can follow. Pick a plan that works for your life and goals. If the 50/30/20 budget isn’t realistic for you, maybe a 60/20/20 breakdown makes more sense — 60% toward necessities, 20% toward wants and 20% toward savings and retirement. You might have to try a few different budget plans to find one that works for you. Just make sure any plan covers needs, wants and savings. Try out a few tools to track your money — like a notebook, a worksheet or an app — and pick the one you’ll actually use.
By testing what works best for you, you’re more likely to find a budget that helps you reach your financial goals.
[1] NerdWallet. 2026 Consumer Outlook Report – 51% Say Prices Will Worsen. Accessed Jan 1, 2026.
The article How to Budget Money in 5 Steps originally appeared on NerdWallet.
LAUREN SCHWAHN and AMANDA BARROSO write for NerdWallet. lschwahn@nerdwallet.com and abarroso@nerdwallet.com
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