Personal Finance

A simple budget: the 50/30/20 rule

The 50/30/20 rule is a popular starting point for a budget: about half of your after-tax income forneeds (housing, food, utilities, minimum debt payments), 30% for wants and 20% forsaving and paying down debt. It is a rule of thumb, not a law: in high-cost cities needs often take more than half, so adjust the split to your situation.

More: how much of each paycheck to save and personal finance basics.

How big should an emergency fund be?

An emergency fund is cash set aside for surprises such as a car repair, medical bill or job loss, so you do not have to borrow at high interest. A common guideline is three to six months of essential expenses; people with irregular income or one earner in the household often aim higher. The CFPB suggests starting small and saving automatically.

Keep it somewhere safe and easy to reach, such as an insured savings account. In the US, the FDIC insures deposits up to $250,000 per depositor, per insured bank, per ownership category.

The rule of 72

Divide 72 by a yearly growth rate to estimate how many years it takes money to double. At 6% that is about 12 years. It works the other way too: at 3% inflation, prices double in about 24 years, which is why cash left idle slowly loses buying power.