Budget Plan 50/30/20- Will it Work for You?

Budgets can feel a little overwhelming starting out, but let’s be honest. One thing consumers should have full control over is our money. Budgeting broken down is a simple math equation: your total income minus your total expenses equals your budget. But for some, we need a little more guidance in how to allocate our funds and improve our overall financial situation. Let’s break down the 50/30/20 budgeting plan and see if it will work for you.

50%: Needs

Needs are things we absolutely have to pay for. Examples of these costs include housing (such as mortgage or rent payments), transportation (toward vehicle expenses or public transportation), groceries, debt repayment, and utilities. When using this budgeting plan, 50% of your after-tax income should be allocated to pay for your needs.

30% Wants

Wants are things we spend money on but aren’t essential for or contribute toward our survival. Wants can include expenses like dining out, vacations, new electronics, and retail therapy. If we deep dive into our spending habits, many of us realize we are spending way more on wants than 30% of our after-tax income. This is a good time to review your budget to cut back or make changes to your non-essential spending. Challenge yourself by asking questions like, “Do you really need 5 different streaming services?”

20% Savings

Building a savings is vital for so many reasons. Life can throw unexpected expenses at us at any time, and contributing toward a savings can help us better prepare and save us from relying on interest-bearing credit cards. Generally, it’s recommended to create an emergency savings before you start saving for anything else. If 20% of your after-tax income feels impossible to save, start small by setting aside what you can and slowly work your way up to it. Before deciding on the amount you’ll save, review your expenses to see if there is anything you can cut out or reduce to increase your savings contributions.

The Benefits

The 50/30/20 budget plan has many benefits, including only having to track three categories of spending. This can feel a little less intimidating for people who are just starting out on their budgeting journey. It also provides a framework that suggests how much of your income should be allocated toward needs, wants, and savings for financial success. Lastly, this budgeting plan can help you set spending boundaries while still treating yourself, allowing for balance alongside intention.

Sources: 

https://www.nerdwallet.com/article/finance/nerdwallet-budget-calculator

https://www.britannica.com/money/what-is-the-50-30-20-rule