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Millennial Money: Don’t let money ‘rules’ get you down – The Associated Press – en Español

Put 20% down when buying a home. Don’t spend more than 30% of your income on housing costs. Keep child care expenses below 10% of your annual household income.

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Put 20% down when buying a home. Don’t spend more than 30% of your income on housing costs. Keep child care expenses below 10% of your annual household income.

These money rules of thumb can be useful guardrails, helping you allocate spending and determine what’s affordable. They can also be incredibly defeating when they feel unattainable.

If money “rules” feel completely detached from your reality, know this: The average American doesn’t come close to hitting many of the popular money rules. And that’s OK.

“If you treat ‘rules of thumb’ as rigid rules, you’re setting yourself up for frustration,” says William O’Donnell, president of Heartland Financial Solutions in Bellevue, Nebraska. “The thing people tend to forget is that guidelines are flexible because everybody’s situation is different.”

What’s important is having a handle on your expenses and building a spending plan that works for you, not some ideal. Here’s how to view money rules of thumb in the context of your own personal financial reality.

THE RULE: Divide your budget into needs (50%), wants (30%) and savings (20%).

THE REALITY: Housing alone can easily eat up half of your take-home pay.

The 50/30/20 rule is a popular budgeting framework that divvies up after-tax income into three buckets: needs, wants and savings. But must-pay expenses can bust that budget before you even get started.

In 2020, for example, 23% of American renters spent half or more of their income on rent alone, according to the most recent data available from the U.S. Census Bureau. Add in other needs — utilities, groceries, transportation, insurance, child care and debt payments — and there’s little, if anything, left over for wants or savings.

Don’t scrap your budget if the buckets don’t work. Instead, embrace the principle and adjust the framework to fit your current financial situation with an eye toward where you’d like to be long-term. Sure, it may be more of an 85/10/5 budget now, but over time you can move closer to your ideal balance.

Simply tracking all of your expenses is a good start; you’ll see where every dollar is going and can make more informed decisions about your spending.

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Source: https://apnews.com/5518fb130f67481669cb77ead2927769

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