What is an 80/20 budget??
What is an 80/20 budget?
The 80/20 budget divides your take home income from your pay into two spending buckets:
1) need & wants
2) savings
This technique is also known as the “pay yourself first” budget.
When you get your paycheck, you will first put 20% of your income away in savings, then the 80% that remains will go towards paying off everything else. By putting 20% away for savings right away, the priority is savings money. With the remaining 80%, it is best to pay off the essentials first like rent and utilities.
The 20% of your savings should be directed at tax advantaged retirement accounts like IRAs and 401(k)s. If you employer matches your 401k contributions, of course you want to max that contribution out. Once you have maxed out your employer match, you should make sure you have an emergency fund in case you lose your job or your car breaks.
The 80/20 budget is easy to use and simple which makes it great for beginners.
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