How The 50-30-20 Rule Can Help With Your Down Payment

How The 50-30-20 Rule Can Help With Your Down Payment

The 50-30-20 rule was created in 2005 as a way to plan a monthly budget while allowing constant savings. The down payment portion of buying a home is one of the largest hurdles for home buyers, so here’s how the 50-30-20 rule can help with your down payment.

How The 50-30-20 Rule Can Help With Your Down Payment

What Is The 50-30-20 Rule

The first step in using the 50-30-20 rule is to add up your monthly income after tax. This can be done by checking pay slips and adding back pensions or other monthly income payments if necessary. When you figure out your monthly income, divide it into 50% needs, 30% wants, and 20% savings and debt payments. This will help you figure out what you can spend each month while consistently putting money away into your savings. For example, if your income is $4000 a month, you’ll have $2,000 to spend on needs, $1,200 to spend on wants, and $800 to put in your savings.

50% Needs

The largest bucket of how the 50-30-20 rule can help with your down payment is the necessity bills. This category is reserved for all of the expenses and bills that must be paid in order for you to survive. These expenses include your rent or mortgage, groceries, utilities, health care, and car payments and insurance. Any other payments that could incur late fees if not paid should be placed in this category as well.

30% Wants

This category is full of all the expenses for services that spice up your life, but are not necessarily needed. Gym memberships, going out to dinner, music streaming services, and tv packages would fall into this category. If you find it difficult to cut down this category, you might consider combing through your monthly subscriptions and see which ones aren’t necessary to help you save more money each month. Saving money and cutting the amount of times you go to brunch with friends will pay off when you’re able to buy your future home.

20% Savings

The remaining income should be placed into savings. Your savings accounts may include a retirement account, emergency funds or specific savings such as for a down payment. By being intentional with this category you can save faster than if you occasionally think about putting some money away.

It’s easy to mistake luxuries for necessities, but many of our everyday services can be eliminated or downgraded. With the 50-30-20 method of budgeting, you’ll find it easier to track your money and more effectively save for a down payment.

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