The way you manage your money now can have a big impact on your finances later on. Habits like saving and investing can boost your financial health, while things like carrying a credit card balance can set you back. Setting up a budget in college can help you track where your money goes each month, which is a good first step toward managing your finances.

The 50/30/20 rule is one popular budgeting method that's easy to set up. You divide your monthly after-tax income into three categories: essential spending, flexible spending and financial goals. Here's how to get started.

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How the 50/30/20 Budget Works

With the 50/30/20 rule, you'll devote half of your take-home pay toward basic needs. If you're still in college, those essentials might include: 

• Laundry 
• Gasoline/transportation 
• Cellphone 
• Car insurance
• Utilities 
• Groceries/meal plan 
• Rent 

The great thing about the 50/30/20 rule is that you cover all your basic needs and have money left over for discretionary spending. You'll earmark 30% of your take-home pay for "wants," such as:

• Entertainment 
• Dining out 
• Other splurges

You'll set aside the remaining 20% for short- and long-term financial goals, which help you get ahead. For example, you can work toward: 

• Contributing to a retirement account
• Building your emergency fund
• Saving for a spring break vacation
• Paying your student loans

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How to Set Up the 50/30/20 Budget

Here are the steps you can take to set up the 50/30/20 budget for yourself.

Step 1. Calculate Your Take-Home Pay 

Start by finding your take-home pay, which is how much you earn each month after taxes. You can also include money that your parents typically send you or earnings from a side hustle, like baby-sitting. Income usually fluctuates for college students, but you can look through your bank statements to make a good estimate. 

Step 2: Review Your Expenses

This step involves listing your monthly expenses. Your fixed costs, like rent and utilities, might be easy to spot. Irregular expenses, like groceries and entertainment, might be harder to estimate. Pull up your recent debit and credit card statements for ideas. 

You may choose to leave out expenses that your parents cover, such as your cellphone bill and car insurance. The same goes for tuition and books, which are typically covered by scholarships, grants and student loans.

Step 3: Categorize Your Expenses

Now that you've nailed down your monthly expenses, the next step is categorizing them into "needs" and "wants." Then create a list of financial goals you want to tackle, such as paying down your student loan interest.  

Step 4: Put It All Together

It's time to crunch the numbers. Let's say you earn $1,800 a month from a student job (after taxes) and your parents give you another $200. Your take-home pay is $2,000 per month. Using your list of wants, needs and financial goals, assign a dollar value to each. Here's an example of how you might set up the 50/30/20 budget:

50% of your income ($1,000) for basic living expenses:

• Laundry — $25
• Gasoline/transportation — $25
• Cellphone — $50
• Car insurance — $50
• Utilities — $100
• Groceries/meal plan — $250
• Rent — $500

 30% of your income ($600) for flexible spending:

• Shopping — $100
• Dining out — $200
• Entertainment — $300

20% of your income ($400) for financial goals:

• Invest $100 in a brokerage account 
• Save $100 in a savings account for a spring break vacation
• Save $100 in a savings account for an emergency fund  
• Use $100 to chip away at student loan interest

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Step 5: Track and Review As Needed

Tracking your monthly expenses can help you figure out if you're sticking to your budget. If you go over in one area during a particular month, you can cut back on your spending in another month. Use the tool that works for you, whether it's a pen and paper, a spreadsheet, or a financial app like You Need a Budget or Mint.

Your bank might also offer budgeting tools that are automatically populated with your balance and spending habits. These tools are usually free to use and integrated with your bank or credit union's website.

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