Perhaps it sounds too boring or difficult to compute a budget? But look at it another way. A budget specifies how you will use your money and can be tailored to your needs and lifestyle. Even better, the 50-30-20 budget shows that budgeting doesn’t have to be difficult.

If you want to simplify your budgeting or are new to it, the 50-30-20 budget could be ideal for you. It entails 3 easy steps that may help you prioritize your monthly financial expenditures.

The 50-30-20 rule covers all bases. And don’t worry if math isn’t your thing because there are calculators available to help you keep track of your budgeting strategies.

This article will explain the 50-30-20 budget rule, including what it is and how it operates. We’ll also discuss 50-30-20 budget calculators, so you can use them right away.

What is a 50-30-20 budget?

In its most basic form, the 50-30-20 spending rule divides your income into three equal categories, which are:

This plan keeps your spending simple and convenient to follow.

How did the 50-30-20 budget start?

Sen. Elizabeth Warren created the 50-30-20 budget proposal. In his book titled All Your Worth: The Ultimate Lifetime Money Plan, Senator Warren described this easy way to budget. And not surprisingly, it has stuck. It’s simple for users to understand and follow.

Why the 50-30-20 rule works

You may be wondering why this budget works. There are several reasons.

It also contains a very easy setup process, as it requires only basic computer skills. If you are not fussed over expenses or you are merely starting, this system is ideal for you. Only 3 buckets – Needs, Wants, and Savings – are of primary interest. The task is easy to identify.

Secondly, it helps you account for every penny. Your after-tax income is 100% of what you possess, and you must work out the different categories from there.

Furthermore, it can enable you to save up for major expenses such as a house or car. It can also speed up debt repayment if that is one of your objectives.

How to use the 50-30-20 rule to create your budget

The 50-30-20 budget rule is easy to follow. To get started, you need to determine your after-tax income. This amount is the amount you have left after paying all taxes and insurance premiums. These taxes consist of federal, state, medicare, and social security.

Don’t be confused by your income, which is the amount before tax deductions are taken out. We’re only interested in how much money is left over in your bank account for your three major categories.

If you want to see your take-home pay quickly, check your paycheck stubs.

If you run your own business, you’ll still earn after-tax income. All you have to do is take your gross income and deduct your company expenditures and any state or federal taxes.

Once you’ve determined your after-tax income, the fun begins. It’s time to categorize your income into the three categories.

Category 1: 50% Needs

The 50% Needs category is for your monthly essentials. It includes things that you cannot do without, such as food or water. Include rent and mortgage payments, healthcare expenses, groceries, car payments, utilities charges, and debt payments.

As you can see, the Needs budget category only includes the items you need to survive. Do not include amusement, takeout, or fine dining in this budget category.

You should be able to easily meet your expenses with 50% of your monthly revenue after tax. If you’re spending more, you may need to reassess your budget.

Are you overpaying for rent? Do you spend more on transportation than you can afford? Do you spend a significant portion of your income on weekday lunches? These are all good questions to ask yourself.

In any case, you can change your budget immediately and reduce your expenses by living in an affordable home or using public transit. Consider moving to a cheaper property or using public transport to cut costs. Additionally, you can make food at home and bring it to work.

Category 2: 30% Wants

(Nice to have) are all the things you spend money to purchase that you don’t have to have but might enjoy. These are items you certainly do not need, but may nonetheless bring you enjoyment. That’s fine! The goal is to maintain a healthy budget, so you do not overspend.

The list of Needs is endless and varies from person to person depending on your lifestyle.

Your personal list could include going to see a movie, dining out, buying new electronics, purchasing a new handbag, or buying concert tickets. Someone else’s list may include cable TV or a Netflix subscription, attending a concert, and joining a health club.

50-30-20 Budget
50-30-20 Budget

Remember: There are many good substitutes for Needs that cost very little to nothing. For instance, you could buy the latest iPhone but can’t afford it.

Instead of paying a high price for an older version of the iPhone, users will still get the same benefits from exercising at home. Additionally, fitness enthusiasts who cannot afford to pay for a gym membership could still work out at home.

You can always find a better price when you shop for an item. However, be sure to do your due diligence before making a purchase. Needs, so you enjoy participating in these activities once in a while as well.

Sometimes, individuals may desire a luxury experience that is beyond their price range. For example, someone might be interested in a BMW when they would be better off with a Toyota.

Exercise prudence with your demands, as it is sometimes easy to waste money if you insist on something. The Wants category is the trickiest to master.

Category 3: 20% Savings

Arguably the most important category in the 50-30-20 budget is the Savings category as this will determine your financial future. Savings in this case refers to both savings and investments.

Savings can take many forms such as your emergency fund to your savings account or your money market investments. They can also include any investments you have in money markets.

Investments refer to any money you have set aside to generate income. This could include investing in the stock market, buying real estate, or establishing your retirement portfolios.

Your top priority in this category should be your emergency fund. It is important to have three to six months’ worth of living expenses saved in your emergency fund.

Besides that, save for retirement. This can include investing into your company-sponsored 401(K) plan or an IRA. You might look into hiring an advisor to help configure this.

A quick note on paying down debt

Do you have debt, a personal loan balance, or student loans to pay off? Debt payments are spread across both your Needs and your Savings categories.

Why? The minimal payment on your debts is a Need that you must pay back on time and in full every month.

But settling your money as quickly as possible is a slow and detrimental approach to debt repayment. On the other hand, contributing to your Savings category saves money and helps you pay off your debt more quickly.

This will go toward the interest and the principal, thus saving you considerable interest charges in the future.

50-30-20 budget calculators to check out

It’s easy to determine the 50-30-20 budget with a calculator. All you need to do is input your income in dollars, your rent or mortgage, utilities, groceries, transportation, medical expenses, and charitable contributions. Here are some examples of budget calculators that have 50-30-20 budgets.

Banzai calculator

This Banzai calculator was developed by Shinhan Bank. Enter your post-tax income, and it does the rest for you! You can easily determine how much to allocate to each of the three categories.

Mint calculator

Like the Intuit Mintlife calculator, the Mint Life calculator will determine how much you have for Needs (Essentials), Wants, and Savings. Simply enter your monthly after-tax income and the tool will display your income for Needs (essentials), Wants, and Savings.

DIY spreadsheet

Another option is to create your own 50-30-20 budget spreadsheet. If you are good with Excel or Google Sheets, you will enter your post-tax income into a single cell and setup formulas to convert this into corresponding 50%, 30%, and 20% categories.

Leverage the 50-30-20 budget today!

Budgeting doesn’t have to be difficult, and the 50-30-20 budget is an easy way to achieve your financial goals quickly and easily.

Use your post-tax income as your starting point and make more earnings from there. Now that you’ve finished the first steps, you can get started on today!

P.S. Here are some other budgeting methods to help you. The 80/20 budget, the 60/20/20 budget, the 70/20/10 budget, and the 30/30/30/10 budget!


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