How you can budget and save money with the 50/30/20 plan
Staying on budget can have long-term rewards
DETROIT – Most people don't follow some sort of budget because it can feel restrictive and overwhelming.
Local 4's Help Me Hank has a simple way viewers can save money and still have the freedom to spend.
Only about 41 percent of Americans follow a budget. Many struggle to save money, but there are three numbers that could make it much easier to find a way to manage finances.
The numbers are 50, 30 and 20.
Everyone spends money, but not everyone knows how to budget.
"If you're ever considering taking a loan out, you should first understand the terms and conditions of that loan," said John Haller, of the University of Miami.
The concept involves a simple breakdown: 50 percent of income goes toward basic expenses, such as mortgage or rent, utilities and groceries; 30 percent goes toward discretionary spending, such as dining out, shopping and travel; and 20 percent goes toward savings or paying off debt.
Once a rough budget is in place, look for ways to earn maximum interest on savings, and start as soon as possible.
If a 22-year-old and a 32-year-old both put away $5,000 per year and earn 6 percent return annually, the outcome will be much different when they turn 67. The 22-year-old will have $1.06 million, and the 32-year-old will have $557,000.
The bottom line: Save while you're young and try a budget because the results can be rewarding.
Experts say when it comes to the 50/30/20 plan, commit to saving the 20 percent first before spending the 30 percent, if you have to pick between the two.
One way to make it happen is to create an automatic online transfer so a portion of each paycheck goes right into a savings account.
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