If Saving Isn't Your Strong Suit, the 50/20/30 Budget is a Must


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Kristina Udice
Kristina Udice
May 22, 2024 at 4:36AM UTC
There’s a lot more that goes into budgeting than figuring out how much money you should save by the time you're 30, or how much of your income should go to rent — and making sure you have enough money to pay rent every month. It’s about handling all of your finances and all of your expenses. It’s knowing where every dollar comes from and where every dollar is going. 
If you’re new to budgeting, this can seem daunting and scary — and don’t you just want to forget about it and buy that cute new dress you saw in the store window? Well nip those thoughts in the bud, because the 50 20 30 budget is here to save the day and get you rich (or at least get you breaking even.)
Budgeting doesn’t have to be difficult or soul-sucking. With the 50 20 30 budget, you get a realistic picture of where you put your money every month without losing track or falling into that “I have to put everything on my credit card the last week of the month” hole.

The budget in a snapshot:

PercentageWhere it goes
50% of your take home, post-tax payRent, utility bills, groceries and other essentials
30% of your take home, post-tax payDiscretionary, flexible spending (your gym membership, going-out budget, vacation and more.
20% of your take home, post-tax paySavings, including retirement, down payment fund, etc.

This proportional budgeting tool puts you back in control of your finances and breaks down your income based on what you earn instead of giving yourself a numbered amount to put towards bills or necessities, and it’s an easy lifestyle choice to make.

Your income is divided into three categories — one category goes towards rent and utilities, one category goes towards savings, and the last category goes to recreational expenses, giving you the freedom to have a little fun while knowing the rest of your money is going towards smart expenses.

Whether you’re just starting out on your budgeting endeavors, or you’re a seasoned budgeter looking for a plan with a little more flexibility, following this simple 50 20 30 budget will set you on a path towards fiscal success, reaching your budgeting goals in no time. If you’re tired of living paycheck to paycheck, this is the budgeting method for you.

But before you create a budget, what steps should you take?

1. Calculate your monthly income. This is your after-tax income. Whether you’re paid weekly, bi-weekly, or monthly, it’s, of course, important to know how much you make overall. This way, you can make a plan and break down your expenses accordingly.
2. The next thing you should do is set some financial goals for yourself. Do you want to spend less overall? Do you want to save more? Do you just want to stop living paycheck to paycheck? Once you’ve mapped out your financial objectives, you’ll know what kind of budget works best for you.
3. Take note of your spending habit. Do you spend like crazy on food? Are you a compulsive shopper? Any budget is going to teach you about discretionary spending but it’s good to make a mental note of what you spend most of your money on so you can correct that behavior faster.
Once you’ve calculated your income and set goals for yourself, it’s time to get to budgeting! And the 50 20 30 budget is the perfect place to start.
So how does this budget system work?

50% of your take-home pay goes towards your essentials.

The first category, and the one where most of your income will go, is towards essentials. 
These are your “needs.” These include things like rent, utilities and any other bills you have to pay. 
  • rent
  • mortgage
  • property taxes, HOA
  • student loans
  • electricity bills, internet, water and other utilities
  • transportation costs
  • groceries
  • child support or alimony
  • health insurance, life insurance
Fifty percent might seem like a large percentage but most of the things you need to pay for make up this category. This also includes necessities like groceries, household utilities like cleaning supplies and transportation costs. 
This percentage-based budgeting method means that you will always be living within your means, giving you half of your income to put towards other expenses and knowing that you always have the money to live as this category deals with expenses you have to pay regardless of where you are, what you do, or where you live. Make sure you make enough that rent and utilities all make up 50% or less of your monthly income. This might be the hardest part — making sure you aren’t already living outside of your means.

20% of your take-home pay goes towards your savings.

This next category goes towards savings. This is the money you're saving money for the future — this could be a savings account, an emergency fund, a travel fund and a retirement fund. You can also use this towards debt repayment or paying off credit cards past the “minimum” payment required, too. 
If you haven’t started saving up money yet, this budgeting method is a great way to get started. If you can put a little bit away after each paycheck, then you won’t be struggling down the line. It also gives you a safety net if you ever lose your job or need to move. 
It’s also good to begin putting money into a savings account now so that you have money down the line to make big purchases like a house, apartment, or business. This is a great way to get ahead of your expenses for the future, and should be something that becomes a habit for years to come. Twenty percent doesn't have to be the amount you save, if you can save more, you should absolutely do so. 

30% of your take-home pay goes towards flexible spending expenses.

The last category is dedicated to recreational expenses. 
These are your “wants.” These are things you don’t necessarily need, but you want. This could be your morning coffee run, brunch budget or your ClassPass subscription. 
This portion is also entirely discretionary. You don’t need to spend the entire 30% of your budget, but this is money that you are allowed to spend on what you want. This is where you can have your fun — so make the most of it. But proceed with caution. This is still a budget, after all, and you don’t want to be blowing all the free money you have on things like new shoes. Budgeting is also a lifestyle choice, and it’s important to get in the habit of smart spending.
Committing to a budget will do wonders for your finances for years to come. It’s a lifestyle choice that will put you in control and ensure you never struggle with money or debt ever again. And with this 50 20 30 method, you’ll be a pro budgeter in no time.
Be patient with yourself if you're new to budgeting — building financial discipline takes time and commitment. The good thing about this budget is that it's pretty flexible and broad, and allows you room to have money to do what you enjoy.  You can still go out for drinks with friends or go check out that new movie — and feel good doing it. Keep plugging away at your 20 percent savings and watch your bank account fill up right before your eyes.
What do you think of this budget? Let us know in the comments below.

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