Greg Iacurci -
CNBC
Budgeting and saving money may seem difficult, but the 50-30-20 rule is an easy way to start, explains Cathy Curtis, a certified financial planner in Oakland, California.
The figures refer to the part of the net salary that is allocated to the different areas of life: 50% of the salary to cover needs, that is, what "must have", such as food, housing and transportation;
30% for discretionary spending, the “wants” category, which can include leisure, travel and shopping;
and 20% to save and pay debts.
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According to Curtis, founder of Curtis Financial Planning and a member of the CNBC Advisory Council, when applying the 50-30-20 rule, "you have to pay yourself first."
In other words, set aside 20% for savings and debt immediately, and then budget the rest for needs and wants.
Automate that saving whenever possible.
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Even if you can't save 20%, put some aside—even if it's just 1%—to start building a habit and developing positive feelings about your money.
“Saving [for the future] is just as important as any other expense you have.
Do it no matter what,” she suggested.
Failing to do so can mean not having enough money to finance your lifestyle later, perhaps even living in poverty, according to Curtis.
How to prioritize saving and paying off debts
When choosing how to allocate 20% of your salary to saving or paying off debt, it's important to keep in mind how expensive debt is.
In other words, is your loan high or low interest rate?
If the interest rate is low—6% or less—Curtis recommends dividing 20% equally between saving and paying down debt.
If the interest rate is high, as in the case of credit cards, use most or all of that 20% to pay off that debt first.
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Financial advisors often recommend having an emergency fund to cover unforeseen expenses, along with other savings like money for retirement.
High-yield savings accounts offered by online banks are often one of the best places to park that cash, as they generally offer quick access and a decent interest rate.
A Roth individual retirement account is also a flexible way to save and invest money, Curtis says.
Contributions can be withdrawn at any time without penalty, making Roth IRAs good emergency funds and also retirement funds that grow and compound over time, Curtis explains.
Roth IRAs may not be available to higher income earners due to income limits.
Those who need help choosing how to invest can turn to a low-cost “robo advisor” like Wealthfront, Betterment or Charles Schwab, Curtis said, which develop an automated investment program based on your risk tolerance.