Creating a 50-30-20 budget is an effective way to live within your means and put aside money to pay down debt, or ensure that you have money set aside for an emergency. This plan can help you see clearly what you can afford and what you can't afford. Base the budget plan on your after tax income..
Allocate 50 percent of your after-tax income to must have items. These must haves include housing, food, utilities, medical care, insurance, minimum loan payments and things you are obligated to pay for. Don't include things you don't need such as cable, a gym membership or new clothing. If you can live without the purchase for several months the item doesn't count as a must have, money expert Liz Weston writes in a 2011 MSN Money article.
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Reserve 30 percent of your income for wants. This portion includes your cable bill, eating out, gym memberships or a new pair of shoes.
Set aside 20 percent of your after-tax income for savings and paying down any debts. You can use this money for a medical emergency or if you lose your job. Loan payments you make above the minimum or contributions to your retirement also go in this category, reports Weston.