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By Morningstar Canada | 02-15-2017

How to Adult, Episode 1: The 50-20-30 Budget

New professionals can use this simple plan to keep careful track of monthly spending.

When you get your first full-time salary, you might be tempted to go on a spending spree, even though you know that's a bad idea. You probably will wonder how you should properly divvy up your paycheck. Try using a 50-20-30 budget.

50% of your paycheck is for things you always need. That includes regular expenses like rent and utilities. We all need to eat, right? So groceries go in the need section. And we all need to get around, so your transit pass or your car payments go in here too. These are the most important expenses you have, so they deserve the biggest portion of your budget.

20% of your paycheck is for things you want or need later. You might have student loans or credit cards to pay off. Maybe you're already thinking about retirement, or buying a home or a car. Maybe you just want money on hand in case of emergencies. Set aside 20% every month to make all these things happen.

30% of your paycheck is for things you want when you want them. It takes money to have fun, whether it's a night out, a trip across the world, a new pair of shoes or even just a daily cup of tea. Set aside 30% every month, and you won't ever have to feel guilty about enjoying yourself.

Before you start calculating, keep track of how much you're spending already. Are you sure you're not spending more than you earn? If you are, you will need to cut down on your less-than-necessary expenses, like perhaps those new shoes. Shelter, food, transportation and debt payments come first.

Sometimes it can be tougher than that. If your necessities take up more than 50% of your pay, you might need to rethink your living arrangements. Is it worth living in a downtown one-bedroom without a roommate if you're in the red every month? If being smart about money matters to you, and it should, you need to be able to answer.