The simplest budgeting method you'll ever use, the 50 30 20 budget rule is a great option for beginner budgeters and people looking for a new budget options #budget #money #finance budgets are great to help you save money

50/30/20 Budget Explained

 

how to use the 50/30/20 budgeting method | 50/30/20 budget | 503020 budget | beginner budget | The 503020 budgeting principle is a great, minimalist way to handle your monthly budget. It is a very beginner friendly way to budget for beginners and can be a great first step for budgeters. #budget #money #financeThe first step toward being a more financially conscious person is really knowing where your money goes. What’s the best way to do this?¬†A budget, of course!¬†Budgeting is one of the best things you can do to save yourself money and set yourself up for financial success and I really think the 50/30/20 budget is a great option for everybody.

Have you ever found yourself wondering how much of your income you should be spending on a certain item in your budget? Where does each specific item fall in the grand scheme of building financial freedom? Man, money is confusing. 

Before we start, I just wanted to let you know that we recently created a FREE email course all about budgeting that I think you’ll love! It’s called 5 Days to a Beautiful Budget and you can subscribe to it below!

 

I know it can all get pretty darn complicated, but the 50/30/20 budget can really take some of the guesswork out of it for you so let’s dig in to how it works and get your money¬†on track.¬†

 

Why Should You Budget?

So many people don’t have the slightest idea where their money is going each month. These same people also turn a ton of their random wants into their “essentials” and manage to justify every single penny they spend.

The hard truth is, most people who are in serious debt have never had a budget because they don’t take their money seriously. Every person out there could easily get closer to being debt free if they used something like the 50/30/20 budget to shove them in the right direction.

Before you start budgeting, you need to know what your bigger purpose is. What are you trying to work towards? The only way to continue to stay motivated to reach your financial goals is to focus on your why.

What could your motivator be?

You could be trying to get out of debt, save for a house, pay for your kid’s college, or just save for a vacation. When you have a serious goal in mind your budget will go a lot smoother.

 

Basics of the 50/30/20 Budget

The 50/30/20 budget divides your monthly income into three separate categories. These categories all have different percentages of your income associated with them that should be given to each part of your finances!

The budget essentially tells you how much money you should be putting towards your expenses, choices, and priorities. Don’t worry, we’ll keep digging in to these categories so you can get a better understanding of how it works.

 

50/30/20 Budget Categories 

#1 Р50% Essential Expenses 

The 50/30/20 budget puts 50% of your monthly income straight towards the things you¬†can’t live without.¬†These includes things like your mortgage/rent, utilities (heat, water, electricity), food, and transportation.

*Many finance bloggers will sneak a cell phone bill into this category. Personally, I believe having an expensive cell phone is a choice. People lived without them for hundreds of years! 

These things are all necessary for you to stay alive. You need a roof over your head that has running water/electricity, you need food, and you need to get to work to pay for it all!

#2 – 30% Personal Choices

This category is where you get to have some¬†fun money.¬†Woo! Any money you spend that isn’t considered an essential expensive is going to go into this category. This could include your phone bill, cable/netflix, hobbies, clothing, eating out, drinking, and gift giving!

Any money that¬†isn’t spent¬†by the end of the month gets transferred into the 20% category to help you reach your financial goals. This money¬†does not¬†roll over into the next month’s personal choices, don’t make that mistake!

#3 – 20% Financial Priorities

This is arguably the most important category in your budget. This is the category where your personal financial goals are going to come into play. What are you personal goals? Here are some examples:

You can either choose to devote the entire 20% to one category of financial priorities or you can further divide the 20% into the different sections of your priorities.

 

50/20/30 Budget in Action 

My favourite thing to do for budgeting type posts is to give an example of a realistic couple/family budget that can show you exactly how this works. So, we’re going to work with a couple named Dan and Serena (yes, I’m watching gossip girl in the background while writing this post, don’t judge me).

Dan and Serena are a 30-year old couple with a combined total monthly income of $5,000 after taxes. They aren’t very fancy (unlike the real Dan & Serena) and don’t need a ton of money to cover their lives.

With a $5,000 income, their budgeting categories look like this:

  • Essential Expenses (50%): $2,500
  • Personal Choices (30%):¬†$1,500
  • Financial Priorities (20%):¬†$1,000

 

50% Essential Expenses ($2,500)

Dan and Serena have the follow essential expenses that add up to $2,500 a month.

  • Mortgage: $1,250
  • Utilities: $250
  • Groceries: $400
  • Transportation: $600

30% Personal Choices ($1,500)

The personal choices of Dan and Serena are as follows:

  • Phone Bills: $200
  • Netflix & Cable: $100
  • Dan’s Soccer League: $50
  • Serena’s Weekly Paint Class: $150
  • Bi-Weekly Date Nights: $200
  • Other Entertainment: $200
  • Miscellaneous: $600
  • remaining of the miscellaneous category rolls over at the end of each month to their financial priorities!¬†

20% Financial Priorities ($1,000) 

Currently, Dan and Serena’s only debt is their student loans, so they’re pretty lucky. They prioritize their finances in the following ways:

When their student loans are paid off at the end of the year, they’re going to start investing more heavily in their retirement funds to get to the recommended 15% of income towards retirement!

 

 

Final Thoughts

One of my favourite quotes is “failure to plan, is planning to fail”¬†and it applies so heavily to budgeting. If you make a plan for your money it makes it so much easier to succeed! This budgeting technique can work for you if you fo

cus hard and remember your why.

If you try out the 50/30/20 budget, or have used it in the past, let me know what you think about it in the comments below!

 

 

Taylor O'Halloran

Hey! My name is Taylor O'Halloran and I'm a huge fan of saving money any way I can.I'm obsessed with dogs and I love all kinds of cheese even though my stomach hates it.  I'm a recent university graduate who just wanted to do her own thing and see what happens! Follow me on the journey!

8 Comments

  1. Princess says:

    I thought your post was outstanding ! ! !

    1. Taylor O'Halloran says:

      Thank you so much!

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  3. Greg Heiny says:

    Interesting budgeting concept 50/30/20 but unfortunately it depends on what part of the country you live in, costs associated with the weather, utilities, increases, net earnings, etc. I think you needed to state you were talking about net earnings vs. gross earnings etc. I also think your 50/30/20 is an over simplification of the difficulty that the budgeting process is for most people. Hint: When your child understands the concept of money ask them to put together their own budget for each month & the yearly total spent etc. I put my child on a budget when she reached 4th grade because I got tired of being nickle & dimed to death by her when she went shopping at the mall. Especially since I had a very small & tight budget, plus living in central California from 1994 to 1996.

  4. Lejla says:

    If I put more money in mortgage is it extra part going in essential expenses or financial priority?

    1. Taylor O'Halloran says:

      It depends how you look at it! Once you cover your monthly minimum payment (an essential expense) I‚Äôd say that paying extra on a mortgage would be a financial priority because you‚Äôre choosing to pay it off earlier ‚ėļÔłŹ

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