Explaining the 50/30/20 Budget

We get it; budgeting can be a daunting task, but creating a budget will help you keep track of your expenses, which in turn keeps your spending, whether necessary or recreational, intact. The 50/30/20 rule (also referred to as the 50/30/20 Budget) can be a great guide to help you budget for your bills, goals, saving, and to also have play money to spend on any additional wants you may want.

You may have budgeted before where you allocate a dollar amount to a specific expense such as your car note or fast food and found that it didn’t work out as you expected. This is where the 50/30/20 Budget comes in to play. This Budget (or also called a rule) categorizes your net income into three buckets; Essentials (50%), Wants (30%) and Savings (20%).


Essentials (50%)
The first 50% of your paycheck should be allocated towards bills that you cannot live without and necessities such as your mortgage or rent, groceries, utilities, car notes or any other essentials you need to live your day to day life. This 50% category of the budget also includes minimum payments to any other debts you may have, including personal loans, credit cards, student loans, etc. For some, it may be a challenge to distinguish what is a need and a want. Sure, you may feel like you need Netflix, but the idea of this budget is that your basic essentials and necessary living expenses should be met with 50% of your income.

Wants (30%)
In this category, you will allocate money for the wants that you don’t necessarily need but that will enhance your lifestyle. Some examples may be a vacation, eating out, gym memberships, concerts, movies and beauty upkeep. Keep in mind, with this way of budgeting, 30% is the absolute max you should utilize for wants and luxuries. The less you spend in this category, the more progress you can make towards paying down debt or saving for your future.

Savings (20%)
Finally, dedicate 20% of your earnings towards saving for your future self. This includes retirement funds, emergency funds and paying down debt outside of minimum payments included in the “Essentials” category of your budget plan. You may also consider having 20% of your paycheck automatically deposited into your savings account. This way, you won’t be tempted to use the money allocated for savings.

Will the 50/30/20 Budget work for me?
Overall, the 50/30/20 Budget isn’t perfect and can vary based on circumstances, such as where you live and how much you earn, but it does provide a framework for you to work within. This rule can be a great starting point for those who need structure in their financial lives to improve their spending habits but are not ready to tackle spreadsheets and gritty numbers. Ultimately, the decision is up to you. Try this out and see if this is something that helps you stay on track and also enables you to achieve your financial goals. With numerous budgeting methods out there, conduct some research to find the best fit for your lifestyle.