As you probably figured out, your money (net income in this case) goes into one of three ‘buckets’ of expenses.
50% Essentials: This covers your ‘needs’ like rent/mortgage, food, utilities, and necessary transportation.
20% Financial Priorities: This money is allocated for your future such as investing for retirement and taking care of important money goals now like having an emergency fund and paying off your debt.
30% Wants: These are your lifestyle choices. What do you two enjoy?
It’s encouraging to see at least 20% being devoted towards financial goals. (Though if you want to retire early or pay off your debt as fast as possible, you’ll have to bump that up. )
Another plus with the 50/20/30 budget is how easy it is to set up bank transfers and bill payments. You two can set it up one evening, giving you more time for things you enjoy.
Who is the 50/20/30 Budget For?
More macro oriented couples would appreciate this framework as they have a big picture view of their finances.
Others who want to save for the future without depriving themselves of spending now may find this budget more sustainable.
Finally if you’re new to budgets, this simple yet effective system can be a fantastic starting point.
Getting Your Spending Under Control
Now as easy as it seems to get started on this budget, the two of you may quickly realize that your current spending is much higher than you expected.
If you’re looking to adjust things to bring them in line with the 50/20/30 budget, I suggest using free tools like Personal Capital (which also has some powerful tools to optimize your investments) and Mint.
Thoughts on the 50/20/30 Budget
While not for everybody, I do think the 50/20/30 budget can be a wonderful fit for some couples.
If you two use it, please share your take in the comments. What made you try it out? Did you find it easy to start?
When we first opened our joint account, Rob and I quickly discovered that we had different ideas on how to handle money.
Among some of the initial surprises was his insentience that we needed a buffer in our checking account.
I thought since we had joint savings we didn’t need an additional financial cushion. Besides, our checking wasn’t earning any interest, why would we want to keep extra money there?!
Eventually I came around when I saw the benefits – less stress without having to change much on our budget. (Actually once we had our bank account buffer in place, we didn’t have to do anything. We only had to replenish if we had to use it.)
If you two want to have more control over your money, then a buffer can give you some peace of mind.
Bank Account Buffer is Not an Emergency Fund
Just to clear things up, a buffer is not part of your emergency fund (which I think you should stash in savings to earn some interest).
This is a financial cushion to absorb things like:
small unexpected expenses
surprise gifts (if you only have joint bank accounts).
With this buffer you two will a much easier time when hiccups come up (and they will).
Figuring Out How Much Goes to Your Buffer
Once we both decided that having a buffer was good, the next step was figuring out how much would be good.
Again, there was an initial disconnect – I was thinking $100 and he was going for something closer to $500.
Since I was a working college student and he was just a year out and still very much entry level at his job, I thought he was crazy.
Being the awesome guy that he is, we started off with my number, but slowly we shifted towards his.
One big push towards it was my switch to self-employment. Happily most of my work gets paid on time.
Building a a Bank Account Buffer
I know it can be difficult to come up with the money if you’re already living paycheck to paycheck.
Start off with saving up $100 in your checking account. Once you reach that works towards your goal.
Want a rule for thumb for a goal? Try for a week, maybe two of your take home pay. Any more beyond can be more helpful to you guys in savings.