How To Use The 50/30/20 Budgeting Method (Quick and Effective!)

Get control of your finances with the 50-30-20 budgeting method! This budgeting rule will help you plan for the future while also enjoying the present!

Planning and mainlining a budget may seem easy, but if you don’t know where to start, it can be very overwhelming.

You have to take into account every single aspect bill, expense, and even budget for emergencies.

Because it is so overwhelming for some, there are American families who hate budgeting and have bad money habits. A Debt.com survey shows there are 20% of Americans who do not think the budget will do any good for them. That’s one in every 5 Americans! 

“The word ‘budget’ has gotten a bad reputation, but it’s just a plan for your money. It doesn’t mean you have to live on nothing.” – Dave Ramsay

So, if you are among the 20% of Americans who still have reservations in their mind about the effectiveness of the budget, then I have the solution for you.

How To Start A Budget From Scratch

Have you ever heard about the 50-30-20 budget rule? It is quite popular among new budget-learners. The financial experts recommend it too for its easy and simple calculation.

Feeling nervous? Be calm. Just follow the guideline written below and check yourself how quickly you can create your budget planning with a 50/20/30 budget rule. You do not even need any expert help while planning it.

Why is it divided in 50-30-20 way?

“If a budget doesn’t allow for any fun. It becomes a burden.” – Tyler Omoth

The 50/20/30 rule is good for you because you don’t need to curtail anything from your life. Be it savings, fulfilling monthly necessities, or the entertainment. The 50/20/30 budget rule has space for everything.

Let’s check out how your after-tax income is getting divided into 3 segments.

 

  • 50% of your after-tax income will go to fulfill your ‘needs’.
  • 20% of the post-tax income’s destination is only ‘savings’. 
  • 30%, the rest of the money will go to ‘wants’. You can spend it as you wish.
 
 

The 50% or ‘Needs’ will be spent for what purpose?

‘Needs’ is for fulfilling your basic needs. A table may help you to understand what will be included in ‘Needs’.

 

 

        Percentage

          Used for

          Example

                  50

  1. Your basic survival needs.

  B. The bills you must pay.


  • Grocery Shopping
  • Utility Bills
  • Health Care Premiums
  • Insurance Premiums 

    

  • House Rent   

     

  • Mortgage Payment

        

  • Car Payment 

      

  • Your Secured Loan Payments  

     

  • Credit Card Bills 

      

  • Your Unsecured Loan Payments

          

  • School and College Tuition fees of your kids

What will be included in the 20% or ‘Savings’ category?

20% of your post-tax payment income will go in the ‘Savings’ and ‘Investment’ category. A table may help you to understand clearly the significance of 20% in your life.

        Percentage

        Used for

        Example

                  20

        A. Savings.

         B. Investment.

  • Money saved for Emergency Purpose

 in a Bank-Savings  Account.

 

  • Contribute in 401(K) or 403(b).

 

  • IRA (Individual Retirement Account) Contributions.

 

  • Investment in the Stock Market.

 

  • Investment in Commodity Market.
  • Investment in Mutual Fund.

 

  •  Investment in Bond.

 The 20% allocation for ‘Savings’ is not at all a difficult to do.

Just remember something. Your Emergency Savings Fund should consist of at least 3 months to 6 months of savings.

The 401(K) or 403(b) is aimed at your post-retirement savings. Never withdraw the money before age 59 ½ years, then the IRS will penalize you with 10% fine.

Your priority savings are IRA Contribution and 401(K) or 403(b) contribution. The investment comes only in the later stage. You should ask for an experts’ guidance before investing in the stock market.

 

30% or the rest-of-the post-tax income or the ‘Wants’ will be used for what purpose?

The 30% or the last part of your after-tax income can be used for non-essential spendings. Like you can use that money for entertainment purposes and leisure activities.

Take a look at the table where you can spend 30% or the rest of your money. 

      Percentage

          Used for

        Example

                  30

          Entertainment

  • Going for Dinner in a Restaurant.
  • Watching a Movie in the Theatre.
  • Going Shopping.
  • Buying tickets for sporting events.
  • Holiday-Spending and Going for Vacation.
  • All types of Entertainment-Centered Spending.

The 30% or ‘Wants’ is purely centered with everything enjoyable and entertaining. 

How the 50-30-20 budget rule can cover all aspects of your finance & life?

First of all, for the newbies, running their finances in an organized state is a big challenge.

From other budget rules and calculations, depending on the 50:20:30 budget rule is a much easier way to plan the home budget, personal finance and retirement.

You can divide and categorize your expenses in the correct way with the 50-30-20 budget rule. So, chances are very good it will cover all aspects of your finance and life. 

 Your savings percentage will increase with the 50:20:30 budget rule.

Why should the newbies or first-time budget planners depend on the 50-30-20 budget strategy?

This particular budget planning strategy or the 50:20:30 budget rule is created for helping the first time budget planner to set up a financial goal in life.

It is the general tendency of people to spend more than what they have earned. This tendency of people drags them towards debt. You are aware that debt is not good for your financial health. You have to make minimum payments every month or repay the loan with a high-interest rate.

And more than that if you have taken a payday loan during an emergency, you have to repay it with more than 300% interest rate. Even if you meet an expert to settle your payday loans, the expert will advise you too about planning a budget so that you would never fall into the debt trap again.

The 50-30-20 budget strategy can guide you with the best way for making a balanced financial life.

Always remember the more simple will be your budget formula, the chances of your budget being successful is higher.

 “It is not necessary to do extraordinary things to get extraordinary results.” – Warren Buffet

It will be unfair if one or two lines are not described about the creator of this idea. Massachusetts senator Elizabeth Warren first propagated the idea of 50-30-20 budget rule in 2005. She wrote the book ‘All Your Worth: The Ultimate Lifetime Money Plan’ and promoted the idea of 50-30-20 budget rule.

Spend 5 minutes in your day find small ways to improve your finances. Those 5 minutes may bring the turning point of your life.

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Learn how to create a simple and effective budget with the 50/30/20 budget method.This is the perfect budget plan for beginners like me to start a budget and save money to pay off debt. And the free printable template is pretty amazing too! #budget #budgeting
Learn how to create a simple and effective budget with the 50/30/20 budget method.This is the perfect budget plan for beginners like me to start a budget and save money to pay off debt. And the free printable template is pretty amazing too! #budget #budgeting
Learn how to create a simple and effective budget with the 50/30/20 budget method.This is the perfect budget plan for beginners like me to start a budget and save money to pay off debt. And the free printable template is pretty amazing too! #budget #budgeting
Learn how to create a simple and effective budget with the 50/30/20 budget method.This is the perfect budget plan for beginners like me to start a budget and save money to pay off debt. And the free printable template is pretty amazing too! #budget #budgeting

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