Is the 50/20/30 Budget Right for You?
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One hang-up people have with budgets is that they have to do a line by line review of of all of their expenses and income.
For those new to budgets or people who are busy already it can seem overwhelming.
If that's you, proportional budgets may be the way to go. And for a practical starting place, I’d suggest using the 50/20/30 budget.
I first heard about it when I interviewed LearnVest's CEO about helping millennials become more proactive with their finances.
How Does the 50/20/30 Budget Work?
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 to 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?
Nice article! I have used the 50/20/30 budget for about 10 years now, and think it has been very useful for me. I heard about it when I read All Your Worth, the book from Elizabeth Warren (now Senator Warren) and her daughter Amelia Warren Tyagi.
I created a budget spreadsheet of this after reading the book, and it has transitioned into my marriage. Now both my wife and I use it to manage our finances.
I’ve since turned this spreadsheet into an app called Moneywyn , that my wife and I use to stay in sync with our money using the 50/20/30 budget rule.
I agree. The 50/20/30 budget is not for everyone. But I think it be of help to everyone, if they let it. That’s the key. You have to be willing to use those budget guidelines.