The 50-30-20 Budget Method Defined

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If you’re new to budgeting or just hate the hassle of tracking every single expense, there’s a budget method perfect for you! The 50-30-20 budget method is simple and lightweight enough for you to manage your money in a way that ensures your essentials and entertainment expenses have sustainable funding opportunities.

Because I write and interview a lot about both of my debt payoff journeys – the $8k in 90 Day Challenge and paying off $10,000 living in NYC, I also talk a lot about how I used the 50-30-20 method exclusively to make both of those goals happen. With this in mind, I thought it was high time I created a post just for this budgeting method to answer any questions and share some related resources.

What is the 50-30-20 Budget Method?

 

Also known as The Balanced Money Formula (proposed by Elizabeth Warren and Amelia Warren Tyagi in their book, All Your Worth), the 50-30-20 budget method is perfect for first-time budgeters and those who don’t want to hassle with individual expense categories.

 

Related: Senator Warren's 50-30-20 Method could Finally Fix Your Budget

How Does the 50-30-20 Budget Method Work?

 

This budget method works by allocating your after-tax income into 3 portions:

 

  • 50% – Needs like shelter, transportation, utilities, debt, and food.
  • 30% – Wants or nonessential expenses that enhance your lifestyle such as gym memberships, cable, beauty essentials, or entertainment.
  • 20% – Savings for rainy day funds or any after-tax retirement savings.
  •  

To stay within the 50-30-20 percentage brackets, you may need to make adjustments to current spending habits or get out of debt, but once you do, you’ll have a long-term, sustainable budget spending plan.

 

Can You Give an Example of the 50-30-20 Budget?

 

For example, let’s say your income for this month is $3000:

 

  • 50% goes to the essentials (things you have to pay no matter what). This means your rent or mortgage, utilities, food, transportation, and debt should not exceed $1500 that month.

 

  • 30% leaves $900 to spend on the good stuff. Spend it on clothing, entertainment, a massage, or hire a babysitter and cleaning service. Just stay within 30% of your income for that month.

 

  • 20% will go into savings, which leaves you $600. After 6 months of savings, you’ll have $3600!

 

This is a “perfect” scenario of course, but it should give you an idea of how this budget method works (providing you’ve wrangled in all your expenses to fit within each percentage block).

The hardest part is sticking to a 50% Needs budget. When you first allocate percentages, you may find your current expenses take up an 80% or 90% scale. Some people find they have too much debt to be able to stick to a 50% budget, which is how the 50-30-20 method shows you where to make changes and adjustments to your budget so your money can do more for you.

 

50-30-20 Budget Examples from Other Finance Bloggers

 

LearnVest recommends this budget approach for first-time budgeters because it helps you figure out how much money to allocate to one of the 3 categories. It also helps you make smarter choices on which expenses to get rid of.

Natalie Bacon likes the 50-30-20 method because it gives you a solid spending plan. Plus you don’t have to feel bad about spending on things you really want, as long as you stay within 30% of your income.

Alexa from Single Moms Income explains how the 50-30-20 budget is easy to use and flexible enough to help beginners plan out spending to meet all financial obligations.

 

 

Where Can I Find a 50-30-20 Budget Template?

 

The budgeting template I offer in the Financial Best Life Starter Set is built on the 50-30-20 model. 

There's also a free tutorial on how to create your own budget template, here. 

If you’re new to budgeting or just don’t like the hassle of managing every single expense each month, the 50-30-20 budget method is perfect for you to manage your money in a way that makes sure you’re saving enough, managing essentials properly, and having fun.

 

The 50-30-20 Budget Method Defined
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    • Mr. Smart Money
    • July 31, 2017
    Reply

    The importance of budgeting can’t be understated! Thx for the reminder on an easy rule of thumb.

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