The 50-30-20 Rule: How It Works + A 50 30 20 Budget Template

Like many, you may shudder on the word budget, or perhaps it sounds too boring or difficult to work out. However the 50-30-20 rule and the 50 30 20 budget template prove it doesn’t must be difficult. For those who’re trying to simplify your budgeting process or are recent to budgeting, then this could be the proper match!

Using budgeting best practices means planning out exactly the way you’ll use your money, and this will be tailored to fit your specific lifestyle and situation with the 50-30-20 rule. This particular budget involves three easy steps that can provide help to prioritize your monthly financial commitments.

The 50-30-20 rule is comprehensive and covers all bases. And don’t worry if math isn’t your thing because we’ve included 50 30 20 budget spreadsheet ideas to provide help to stay on top of your budgeting strategies.

That said, let’s take a detailed take a look at this budgeting rule, including what it’s and the way it really works.

As well as, we’ll include calculators so you may jump right in and start immediately.

What’s the 50-30-20 budget?

In its simplest form, the 50-30-20 budget rule divides your after-tax income into three distinct buckets, that are:

A plan like this helps simplify funds and can be easy to follow.

Who invented the 50-30-20 budget?

U.S. Senator, Elizabeth Warren, got here up with the 50-30-20 budget. In a book called All Your Worth: The Ultimate Lifetime Money Plan, Elizabeth Warren and Amelia Warren Tyagi described this easy method to budget.

And never surprisingly, it has stuck. People love how easy it’s to know and follow!

Why this rule works

You could be wondering why this budget works and the way it’ll impact your life and financial statement. There are a number of reasons it might be great to your funds.

Simplicity

Firstly, the budget is actually easy. So in the event you’re not into details or in the event you’re just starting out, this budget is fail-safe and straightforward to implement.

You simply deal with three buckets – needs, wants, and savings that are pretty easy to work out.

Every dollar has a purpose

Secondly, it helps you account for each dollar.

You begin off along with your after-tax income, which represents 100% of what you’ve to work with, and then you definitely work out the various spending groups from there.

Financial goals

Lastly, the 50-30-20 rule can provide help to stay focused in your financial goals and save up for big expenses reminiscent of a house or automobile.

Alternatively, it might also provide help to create a debt reduction strategy if that’s certainly one of your initial goals.

Percentages to your budget

The 50-30-20 budget is split into three parts. 50% for needs, 30% for wants, and likewise 20% for savings. And remember, you may at all times use a 50 30 20 calculator or perhaps a 50 30 20 budget template to create yours.

Category 1: 50% needs

The 50% needs category is for all of your monthly essentials. Essentials include belongings you simply cannot live without.

As an example, rent or mortgage payments, healthcare, groceries, automobile expenses and payments, utilities, and likewise debt payments.

In order you may see, when budgeting for needs, you simply include the necessities you should survive. It will not include entertainment, take-out, or wonderful dining.

The way to save to remain throughout the 50% rule

You must find a way to comfortably meet your needs with 50% of your monthly income after tax. For those who’re spending greater than this, you could need to re-evaluate.

Are you paying an excessive amount of for rent? Are you spending more on transport than you may afford?

Do you spend a big chunk of cash on weekday lunches? These are all good inquiries to ask yourself.

Regardless of the case, you may make immediate changes to your spending and likewise improve your budget with the 50-30-20 rule.

As an example, consider moving to a more affordable home or using public transport to maintain costs down. Moreover, you may use cold lunch ideas and make your food at home to bring to the office.

Category 2: 30% wants

Wants are all of the “nice to haves” that you simply spend money on with the 50-30-20 budget. These are items you certainly don’t need, but perhaps they’re fun, or they add to your life in a positive way. And that’s OK!

The aim is to maintain an in depth budgeting plan so your spending habits and fun money don’t get uncontrolled!

The list of wants is infinite and likewise differs from individual to individual, depending in your lifestyle.

For instance, your personal list might include going out to the flicks, eating in restaurants, buying recent electronic gadgets, buying a pre-owned designer handbag, or tickets to a giant game.

One other person’s wants might include cable TV or a Netflix subscription, going to concert events, and paying for gym memberships.

Consider alternatives to large expenses

Remember: there are a lot of good substitutes for wants that cost little to nothing.

For instance, it is advisable to buy the most recent iPhone but can’t afford it. As a substitute, buy an earlier version, and also you’ll still get the identical advantages.

Alternatively, fitness fanatics who can’t justify the associated fee of signing up for the gym could work out at home as an alternative.

There is sort of at all times a less expensive alternative available if you’re trying to purchase an item. But be at liberty to balance your needs vs wants so you continue to enjoy a few of these activities once in a while.

Wants may sometimes include premium experiences which can be beyond reach financially. Determine what you may afford using the 50-30-20 rule.

For instance, someone may need a recent BMW once they can easily have a nicely equipped Toyota that will cost much less.

Be mindful of your wants, as it might be easy to justify spending in the event you really need something. This concept is difficult to master.

Category 3: 20% savings

Arguably crucial category within the 50-30-20 budget is savings, as this may determine your future. Savings, on this case, refers to each savings and investments.

Savings can take many forms starting from your emergency money to your savings account. It could actually also include any money market investments you’ve.

Take into accout that investments seek advice from any money you’ve put aside to generate income. It could actually include investing within the stock market, purchasing real estate, or organising your retirement accounts.

Priorities for saving

Your top priority ought to be your emergency fund. It will be important to have 3 to six months’ value of living expenses saved in your emergency fund.

Beyond that, deal with your retirement savings. These can include putting money into your company-sponsored 401(K) plan or an IRA. You would possibly ask yourself, “Do I want a financial advisor?” and you may consider hiring one to provide help to set this up.

The way to use the 50-30-20 rule to create your budget

The 50-30-20 budget rule may be very easy, and it only has a few steps to start. Listed below are some tricks to be sure the budget works well for you.

Know what your income is

To start, you should work out your after-tax income.

After-tax income is just the sum of money you’ve left over after taxes are paid. These taxes include federal and state, along with Medicare costs, and don’t forget about social security.

Note: Don’t be confused by your gross income, which is the salary you earn before tax deductions have come out. We’re looking purely at how much money you’ve left in your checking account to divide it into your three principal categories.

For those who need a quick and straightforward method to work out your take-home pay, simply take a look at your paycheck stubs.

If you run your personal business or are starting a side business, you’ll still calculate your after-tax income. All you’ve to do is take your gross income and subtract your enterprise expenses and likewise any state and federal taxes.

Split your income into the three categories

When you’ve discovered your after-tax income, the fun begins. It’s time to separate your income into the three spending groups.

You’ll be able to do that by creating your personal budget or through the use of the 50 30 20 budget template.

And then you definitely’re all set! All you’ve to do is keep track of your money and likewise be sure you stick with the budget.

A fast note on paying down debt

Do you’ve bank card debt, a private loan balance, or perhaps student loans to pay back? Debt payments fall across each your needs and your savings categories with the 50-30-20 rule.

Why? The minimum payment you owe in your outstanding debt is a necessity in that you should pay it back and likewise pay it on time every month.

But only paying back the minimum amount is a slow and expensive method to tackle your debt.

As a substitute, we recommend contributing to your savings so that you lower your expenses to repay your debt faster and begin living debt free.

The saved money can go towards the principal, effectively saving you money in paying future interest payments down the road.

Expert tip: Customize your percentages

While it’s essential to remain near the odds of the 50-30-20 rule, it doesn’t must be exact for it to work.

For instance, in the event you actually spend 53% of what you make on necessities, this budget will still work relatively well for you.

However, in the event you find that your percentages are very different, you could want to think about one other percentage budget that can work higher to your income and lifestyle.

Examples include the 80/20 budget, the 60 20 20 rule, the 70-20-10 budget, and the 30-30-30-10 budget!

A 50 30 20 budget template you should use

For those who haven’t already arrange your budget, this 50 30 20 budget template is simple to make use of. Simply add your personal budgeting amounts.

Below is an example with possible amounts included.

Total net income per 30 days: $5000

Needs 50%: $2,500
Mortgage	$1000
Healthcare	$200
Insurance	$200
Utilities	$200
Groceries	$300
Transportation	$200
Debt payoff	$300
Phone Bill	$100
Needs total	$2500
Wants 30%: $1500
Entertainment	$300
Restaurants	$300
Gym	$150
Shopping	$350
Subscriptions and TV streaming services	$100
Miscellaneous spending	$300
Wants total	$1500
Savings 20%: $1000
Emergency fund	$300
Retirement savings	$500
Sinking fund	$200
Savings total	$1000
Total budgeted	$5000

As you may see, you may add whatever amounts you must this 50 30 20 budget template after which use the odds listed to create your personal version of this budget.

You too can add different budget categories if needed, but this works well for instance.

Moreover, here is an actual budget worksheet to download. You’ll be able to lay it out based on the 50-30-20 split discussed. Just click the image below!

DIY 50 30 20 budget spreadsheet

An alternative choice is to establish your personal 50 30 20 budget spreadsheet.

For those who’re great with Excel or Google Sheets, you’ll enter your post-tax income right into a single cell and arrange calculations to convert this into corresponding 50%, 30%, and 20% categories.

50 30 20 calculators

Determining your budget doesn’t must be difficult.

Listed below are some examples of a 50 30 20 calculator.

Banzai calculator

The Banzai calculator will ask you to enter your post-tax income, and it does the remaining for you!

You’ll easily see how much to allocate to every of the three categories for the 50-30-20 budget.

Mint calculator

This selection from Intuit Mintlife is analogous.

Simply enter your monthly after-tax income, and the 50 30 20 calculator will immediately display how much you’ve for needs (labeled essentials), wants, and likewise savings.

Money Fit calculator

The Money Fit 50/30/20 budget tool can be a terrific resource.

It includes category ideas to provide help to see what you spend money on, and you may change the odds to fit your needs.

Does the 50-30-20 rule apply to each budget?

The 50-30-20 rule doesn’t apply to each budget, reasonably, it relies in your income and expenses. It could actually work thoroughly for people whose expenses are roughly half their income.

Nonetheless, in the event you find that your expenses take a bigger portion of your income, then you could need to try a special budget.

Is the 50-30-20 budget gross or net?

The 50-30-20 rule relies on net income, not gross. You make your budget with the cash that you’ve after taxes.

Otherwise, your numbers won’t be accurate because money still has to come back out of your income for taxes, so you might be overestimating the quantity you’ve to spend.

What are the failings of the 50-30-20 rule?

The failings of the 50-30-20 rule mostly must do with preference and income.

Your preference could also be to spend more on savings and fewer on fun money, during which case you may not just like the 30% wants category.

Though it does have flaws, you could find that it really works well to your lifestyle.

Is the 50-30-20 rule weekly or monthly?

The 50-30-20 rule applies to your monthly income and monthly expenses list. So your complete budget relies on what you make in a month.

Doing this budget weekly could be time-consuming and confusing, so it’s best to do that once a month and calculate your entire monthly income at one time.

Articles related to the 50-30-20 budget

For those who enjoyed reading in regards to the 50-30-20 rule, learn more about budgeting by trying out these articles next!

Leverage the 50-30-20 budget today!

Budgeting doesn’t must be difficult, and this selection is a terrific method to start your money goals quickly and simply, especially in the event you resolve to make use of the 50 30 20 budget template.

Remember to make use of your post-tax income as your base and divide your money from there. Now that you’ve all of the steps in place go ahead and start!

P.S. Listed below are other budgeting methods to explore. The 80/20 budget, the 60 20 20 rule, the 70-20-10 budget, and likewise the 30-30-30-10 budget!