The 50-30-20 Budget
Apr 11, 2021
The 50-30-20 Budget, What You Need To Know
If I would have heard about this type of budget when I was starting out with my financial independence journey, it probably would have made things a bit easier on me.
The Overview
The 50-30-20 rule is meant to be a simple budget for beginners. Instead of telling you all the categories you need to put in your budget and how much you need to spend on certain items, the budget just gives you a rough outline.
The 50; 50% Of Your Income Goes To NEEDS
I know that coffee from Starbucks seems like a need when you're energy is dragging, but this category is really for food, shelter, ulitities, and insurance.
For many American, rent alone can be half of your take home pay. This budget can still be for you. While this is a reality for many Americans, the more money that goes towards rent can really limit how you can build wealth in the future.
50% should be a starter goal.
Are you able to get a roommate?
Can you work 5-10 extra hours at work?
Can you move to a lower cost location?
Is there a better paying job in your area?
When you add up all your essential expenses, what percentage is it of your monthly income?
The 30, 30% Of Your Income Goes To Wants
Now, that you have your needs taken care of, now let's take a look at the things your want.
Once again, this budget keeps things pretty relaxed where you get to choose what you include in your wants. Here are some suggestions:
- Eating out
- New clothes
- Entertainment subscriptions
- Last-minute purchases
- Vacation savings
- Saving for large purchases outside of investment accounts
The 20%, 20% Of Your Income Goes To Saving And Debt
Usually, I would recommend that you focus on debt before building up investments to quickly increase your cashflow. This budget does not set that type of priority.
With 20% of your income going to saving and debt, you will be able to address those things, but depending on how much debt you have, the needle may not move a lot.
I'm about momentum and feeling the excitement of seeing progress and 20% split between retirement accounts and debt could seem like a drag.
Final Thoughts?
While I appreciate a budget that gives you the freedom of a structure, I hope that anyone that starts with this budget continues to grow their knowledge of personal finance information.
If you're looking for a way to make your budget totally YOU and feel that momentum of getting good with your money, then check out my course, Abundance In A Budget.
You can get 3 of my go to meal ideas right to your email address. Download the recipes by clicking the button below.
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