A Guide to Budgeting: The 50/20/30 Rule

I am reposting the article "5 Financial Rules to Live By" which is based on a TED talk given by LearnVest cofounder Alexa von Tobel. LearnVest  is a website that provides free financial planning tools for women anywhere in the financial spectrum, from recent graduate to in deep debt (maybe both?).

I thought the most useful advice was the 50/20/30 rule for budgeting:

• 50% of take-home pay goes toward your essentials (housing, utilities, transportation and groceries)
• 20% to debt repayment and future savings
• 30% to everything else

It's simple and easy to remember. Putting 20% towards debt repayment is a good chunk of change, and if you can put some of the 30% miscellaneous spending towards an emergency saving fund, you will have the security of 6 months worth of income in case anything happens to your job.

Why not plan your budget for the next 3 months using it?

Beat the Banks

By now you have heard that the Durbin Amendment to the Dodd-Frank Wall Street Reform Act has passed in Congress. It was originally supposed to help retailers and small businesses save money by reducing the transaction fee that they had to pay to the banks so that they could accept debit card transactions. Theoretically, this savings could then be passed on to us, the consumers. For more information on the history of debit cards and how they actually save money for banks-check out this article from the NY times.

However, the banks are especially good at jumping through any hoops Congress puts before them. Bank of America and many other banks are increasing their fees and restrictions on savings accounts. 
Specifically, Bank of America will start charging a $5 fee each time you use your debit card beginning in 2012. The exception to this are those with a balance of $20,000+ or a mortgage with Bank of America. Citibank is also increasing monthly service fees and higher minimums to qualify for their free accounts like EZ Checking which will start being charged $15 a month if you don't carry a minimum balance of $6,000 (previously $1,500).

We too at The Thrifty Scholar are good at jumping through hoops. Here are our thoughts on what consumers should do next:

Rewards Cards: Playing the Plastic, and Winning!

Karen Chien is a doctoral candidate in Materials Science & Engineering at Northwestern University. She is also excellent at preparing DoFu Delight.

 I've always wondered what made one rewards credit card better than the other. I have one rewards credit card from Chase and another from Bank of America, and the extent of my knowledge was that I could treat myself to some "free money" every time I remembered to swipe that particular card.  This usually happens when I'm trying to buy a plane ticket to Malibu, since I frequently get tired of graduate school life and live fat and happily off of my generous stipend.

Rewards cards now offer cash back, air mileage, and points

First of all, the type of spender you are should influence which card you open:

• Big spenders: These people can benefit from opening cards during promotional periods which provide high amounts of points upon initial purchases (>$1000).
•  Balance-carriers: People who pay minimum monthly payments tend to carry balances. These people benefit from low APR’s as well as 0% intro APR, but would do better with just ONE regular low interest credit card. [Editor's Note: Many of the rewards cards have variable interest rates, which mean they can change at any time. Always read your terms of agreement carefully when opening a new card.]
•  Pay-back people: Savers who tend to pay back cards in full each time  can go for higher bonus levels without as much regard for interest rates, but it is still good to have them in mind in case a sudden financial crisis were to happen and you couldn’t pay your bill on time.
• Categorical spenders (people who like to spend money in a certain category such as travel, retail stores, etc.) could benefit from cards that have annual fees but offer higher rewards for spending within a particular category.  Extra calculations for point to dollar worth can be helpful here.