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Build a budget
Use the 50/30/20 rule to plan a first paycheck, and sort needs from wants.
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A budget is a plan for the money you expect to get. A simple starting point is the 50/30/20 rule: about 50% of take-home pay for needs, 30% for wants, and 20% for savings and paying down debt.
Needs are what you must pay for to live and work: rent, groceries, basic transportation, insurance and minimum loan payments. Wants are everything else: eating out, streaming, concerts, the newest phone. The line isn't always clear. A phone plan can be a need, but the priciest plan is partly a want.
Every choice has an opportunity cost: money spent on one thing can't be spent on something else.
Jordan just started a full-time job and takes home $2,400 a month.
Words to know
Write what each word means in your own words.
- Budget
- Opportunity cost
Questions
- Using the 50/30/20 rule, how much should Jordan aim to spend in each category?
Category Percent Dollars a month Needs 50% Wants 30% Savings and debt 20% - Label each of Jordan's monthly expenses N for need or W for want.
Expense Monthly cost N or W? Share of rent $750 Groceries $300 Bus pass $70 Phone plan $45 Renter's insurance $15 Takeout $160 Streaming services $35 Gym membership $40 Concert tickets $90 - Add up Jordan's needs and wants. Are they within the 50/30/20 targets?
- How much does Jordan have left for savings each month?
- Jordan needs a $600 laptop for a class and sets aside $200 a month for it. How many months will it take?
- What's the opportunity cost of spending $160 a month on takeout, over a full year?
- If Jordan's take-home pay dropped by $300 a month, which expenses would you cut first, and why?
Answer key: Build a budget
Words to know
- Budget: A plan for how you'll spend and save the money you expect to get.
- Opportunity cost: What you give up when you choose one thing over another.
Questions
- Needs $1,200. Wants $720. Savings and debt $480.
- Needs: rent, groceries, bus pass, phone plan and renter's insurance. Wants: takeout, streaming, gym and concerts. Accept other well-argued answers, like a gym as a need for someone's health plan.
- Needs: $750 + $300 + $70 + $45 + $15 = $1,180, under the $1,200 target. Wants: $160 + $35 + $40 + $90 = $325, well under $720.
- $2,400 − $1,180 − $325 = $895, more than the $480 target.
- $600 ÷ $200 = 3 months.
- $160 × 12 = $1,920 a year that could have gone to savings or something else.
- Answers will vary. Strong answers cut wants first and explain the trade-off.
The Dime worksheets are licensed under CC BY-NC 4.0. Share and adapt them freely with credit to The Dime, but don't sell them.
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