3 Budgeting Rules Every Parent Must Teach Their Kids (2024)

FAQs

What is the rule of 3 budgeting? ›

The rule is that a third of your take-home income should be used towards your home, a third for living expenses, and the last third should be for savings and investments.

It could help to create a general “rule” with your child, like 30% of their money should always go to saving or for every $2 in the spending jar, one should go to saving—however you and your child decide to prioritize and divide the money is fine.

Teach the “Earn, Save, Spend, Give” Model:

Encourage them to save a portion for future goals, spend some on things they need or want and set aside a little to give to charity or others in need. This model helps kids understand the different purposes of money and encourages them to think beyond just spending.

1) Have a conversation.

It sounds simple, but this is the most effective way to help your children understand personal finance. Explain how you arrive at financial decisions, what's in your budget (or if you don't have one, why not do one together?) and how different aspects of dealing with money make you feel.

Does the idea of creating a budget seem overwhelming? It shouldn't. You can start having more control over your finances today by using the three P's: paycheck, prioritize and plan.

Mastering the art of financial success hinges on three fundamental principles: Making money, Managing money, and Multiplying money. Understanding and applying these three Ms can help you achieve financial stability and growth, setting the stage for a secure and prosperous future.

Oh My Dollar! From the radio vaults, we bring you a short episode about the #1 most important thing in your budget: your values. You can't avoid looking at your budget without considering your values – no one else's budget will work for you.

Give Every Dollar a Job. Embrace Your True Expense. Roll With the Punches. Age Your Money.

Using The 50/30/20 Rule

The 50/30/20 rule is a popular budgeting method that works for all ages. It ties together many financial literacy tactics, including dividing income into three categories: needs, wants and savings or paying off debts. Your children probably won't cover much of their necessities if any.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

What is the 50-30-20 rule? ›

The 50-30-20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should dedicate 20% to savings, leaving 30% to be spent on things you want but don't necessarily need.

Basic Budgeting Method #1: The Classic Budget

Listing out your expenses, line by line, is a tried-and-true budgeting strategy. Get started by listing all of your monthly expenses in rows. This includes the needs (your rent or mortgage payments, car payments and insurance, cell phone bill, groceries, etc.)

Make budgeting easy

Once savings goals are created, parents can introduce the idea of budgeting to help their children spend their pocket money wisely. A good practice is to hand out pocket money in lower denominations, so it's easier for junior to set aside a portion for various goals.

A three-way forecast, also known as the 3 financial statements is a financial model combining three key reports into one consolidated forecast. It links your Profit & Loss (income statement), balance sheet and cashflow projections together so you can forecast your future cash position and financial health.

Some personal finance experts call it the 3X emergency rule, wherein the emergency fund should be equivalent to 3 months of expenses.

Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

Key Takeaways

The 50-30-20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should dedicate 20% to savings, leaving 30% to be spent on things you want but don't necessarily need.