Like many people, you may be shaking with a budget of words, and perhaps it may sound too boring. However, the 50-30-20 rules and the 50-30-20 budget template prove that it doesn’t have to be difficult. If you are trying to simplify your budgeting process, or if you are new to budgeting, this could be the perfect match.
Budgeting best practices will help you plan exactly how you spend your money. This can be adjusted to suit your specific lifestyle and situation with the 50-30-20 rule. This particular budget includes three simple steps to help you prioritize your monthly financial commitment.
The 50-30-20 rule is comprehensive and covers all bases. And don’t worry if math is yours, as we have included ideas for 50 30 20 budget spreadsheets that will help you figure out your budgeting strategy.
That said, let’s take a closer look at these budgeting rules.
Additionally, including the calculator, it will jump straight away and start immediately.
What is the 50-30-20 budget?
The 50-30-20 budget rule, in the simplest form, divides your after-tax income into three different buckets.
Such a plan can help simplify your finances and can be easily followed.
Who invented the 50-30-20 budget?
US Senator Elizabeth Warren came up with a 50-30-20 budget. Elizabeth Warren and Amelia Warren Tyagi explained this simple budgeting method in their book All Your Worth: The Ultimate Lifetime Money Plan.
And not surprising, it’s stuck. People love how easy it is to understand and follow!
Why does this rule work?
You may wonder why this budget works and how it affects your life and financial planning. There are several reasons why it’s best for your finances.
Simplicity
First of all, the budget is really simple. So if you’re not interested in the details or just starting out, this budget is fail-safe and easy to implement.
Just focus on three buckets. Your needs, desires, and savings are easy to grasp.
Every dollar has a purpose
Secondly, it helps you explain all the dollars.
Start with your after-tax income. This represents 100% of what you have to work with, and from there resolves various spending groups.
Financial goals
Finally, the 50-30-20 rule helps you focus on your financial goals and save on large expenses like homes and cars.
Or, if that’s one of your initial goals, it can also help you create a debt reduction strategy.
Budget percentage
The 50-30-20 budget is divided into three parts. 50% needs, 30% desire, 20% savings. Also, don’t forget that you can always create a 50 30 20 calculator or a 50 30 20 budget template.
Category 1: 50% needs
50% Needs Category is all monthly essentials. Essentials include those you cannot live without.
For example, rent or mortgage payments, healthcare, food, car expenses and payments, utility services, debt payments.
As you can see, when budgeting for needs, you only include the essentials you need to survive. Entertainment, takeout and fine dining are not included.
How to save to stay within the 50% rule
After tax, you should be able to comfortably meet your needs at 50% of your monthly income. If you are spending more, we recommend you reevaluate it.
Are you paying too much rent? Do you spend more on transportation than you can afford?
Do you spend a lot of money on weekday lunch? These are all good questions to ask yourself.
In any case, the 50-30-20 rule can also change your spending instantly and improve your budget.
For example, consider moving to a more affordable home or using public transport to reduce costs. Plus, you can use cold lunch ideas to make food at home and bring it to the office.
Category 2: 30% want it
All desires are “good people who have” who spend money on a budget of 50-30-20. These are items you absolutely don’t need, but perhaps they are fun or they add to your life in a positive way. And that’s fine!
The goal is to maintain a detailed budgeting plan so that your spending habits and fun money don’t get out of control!
The list of desires is endless and varies from person to person, depending on your lifestyle.
For example, your personal lists include going out to a movie, eating at a restaurant, buying a new e-gadget, buying a second-hand designer handbag, or tickets for a big game.
Another person’s requests may include cable TV or Netflix subscription, going to a concert, or paying for a gym membership.
Consider a large cost alternative
Remember: there are not many good alternatives for that desire.
For example, you might want to buy the latest iPhone, but you can’t afford it. Instead, you will get the same benefits by purchasing an earlier version.
Alternatively, fitness fanatics who can’t justify the cost of signing up for a gym can go well at home instead.
Most of the time there are almost always cheap alternatives available when you are about to buy an item. But enjoy some of these activities from time to time as it balances your needs and desires.
Requests may include premium experiences that go beyond reaching financially. Use the 50-30-20 rule to determine what you can afford.
For example, someone might want a new BMW.
If you really want something, beware of your desires. This idea is difficult to master.
Category 3: 20% savings
Perhaps the most important category on a 50-30-20 budget is savings. This is because you can determine your future. In this case, savings refers to both savings and investments.
Savings can take a variety of forms, from emergency cash to savings accounts. You can also include the money market investments you have.
Keep in mind that investment refers to the money you have set aside to generate income. This includes investing in the stock market, purchasing real estate, setting up retirement accounts, and more.
Saving priorities
Your number one priority must be your emergency funds. It is important to save 3-6 months’ worth of living with the emergency fund.
Go beyond that and focus on your retirement savings. These include putting money into a company-sponsored 401(k) plan or IRA. You might ask yourself, “Do you need a financial advisor?” And you can consider hiring something that will help you set up this.
How to create a budget using the 50-30-20 rule
The 50-30-20 budget rules are very simple and only have a few steps to get started. Below are some tips to make sure your budget works well for you.
Know what your income is
To get started, you need to know your after-tax income.
Your post-tax income is simply the amount you leave after the tax has been paid. These taxes include federal and state in addition to Medicare costs, so don’t forget about Social Security.
Note: Don’t be confused with your total income. This is the salary earned before the tax credit was announced. We have purely considered the amount of money left in our bank account and divided it into three main categories.
If you need a quick and easy way to figure out your takeaway pay, look at your pay stub.
Calculate your after-tax income, whether you run your own business or start a side job. All you have to do is take your total income and deduct your business expenses and state and federal taxes.
Divide your income into three categories
Once you find your after-tax income, the fun begins. It’s time to split your income into three spending groups.
You can do this by creating your own budget or using the 50 30 20 budget template.
And you’re all set! All you have to do is track your money and also make sure you stick to your budget.
A brief note on debt repayment
Are there credit card debts, personal loan balances, or student loans to pay back? Debt payments are divided into both needs and savings categories using the 50-30-20 rule.
why? The minimum payment you owe on your outstanding liabilities is necessary in that you will have to pay it back and also pay on time each month.
But paying off the minimum amount is a slow and expensive way to tackle your debt.
Instead, we recommend contributing to your savings. This will save you money to pay off your debts faster and settle them.
The saved money can go towards the principal and save your money effectively when paying future interest.
Expert Tips: Customize your percentages
It’s important to stay close to the percentage of the 50-30-20 rule, but it doesn’t have to be accurate for it to work.
For example, if you are spending 53% of what you actually need, this budget will work relatively well for you.
On the other hand, if you find your proportions are very different, we recommend that you consider a different percentage of budget that will work for your income and lifestyle.
Examples include the 80/20 budget, 60 20 20 rules, 70-20-10 budget, and 30-30-30-10 budget.
50 30 20 budget templates available
If you haven’t set a budget yet, this 50 30 20 budget template is easy to use. Simply add your own budget amount.
Below are some examples of possible amounts:
Total monthly net profit: $5,000
| 50% required: $2,500 | |
| mortgage | $1000 |
| health care | $200 |
| insurance | $200 |
| Utilities | $200 |
| Grocery | $300 |
| Transportation | $200 |
| Refunds on debt | $300 |
| Phone charge | $100 |
| You need a total | $2500 |
| I want 30%: $1500 | |
| Entertainment | $300 |
| restaurant | $300 |
| Gym | $150 |
| shopping | $350 |
| Subscription and TV Streaming Services | $100 |
| Other expenditures | $300 |
| I want the total | $1500 |
| 20% savings: $1000 | |
| Emergency Fund | $300 |
| Resignation savings | $500 |
| Thinking Fund | $200 |
| Total savings | $1000 |
| Total budget | $5,000 |
As you can see, you can add the amount you need to this 50 30 20 budget template and then create your own version of this budget using the percentages listed.
You can also add different budget categories if you wish, but this works well as an example.
Plus, there are actual budget worksheets to download. It can be laid out based on the discussed 50-30-20 divisions. Please click on the image below!
DIY 50 30 20 Budget Spreadsheet
Another option is to set up your own 50 30 20 budget spreadsheet.
If Excel or Google Sheets is great, enter your after-tax income into a single cell, set up your calculations and convert this into the corresponding 50%, 30%, and 20% categories.
50 30 20 Calculator
It’s not difficult to know your budget.
Here are some examples of 50 30 20 calculators.
Banzai calculator
Banzai Calculator asks you to enter your after-tax income.
You can easily see how much you allocate to each of the three categories to your budget of 50-30-20.
Credit Karma Budget Calculator
This option from credit karma is also useful. It doesn’t calculate percentages, it rather provides a complete picture of your budget.
Simply enter your income along with your living expenses, other expenses, etc. It’s easy to see how much leftovers you have each month for your monthly expenses, investments and more.
Money Fit Calculator
Money Fit 50/30/20 Budget Tool is also a great resource.
This includes ideas for categories that will help you see what you spend on, and you can change the percentage to suit your needs.
Does the 50-30-20 rule apply to all budgets?
The 50-30-20 rule does not apply to all budgets, but rather is based on income and expenses. It works very well for people who earn about half their expenses.
However, if you find that expenses make up a large part of your income, try a different budget.
Is the total budget for 50-30-20 or is it online?
The 50-30-20 rule is based on net profit rather than net profit. You will make your budget with the money you have after tax.
Otherwise, your number is not accurate as the money still has to come out of tax revenue. Therefore, you are overestimating the amount you need to spend.
What are the flaws in the 50-30-20 rule?
The flaws in the 50-30-20 rule are primarily related to preference and income.
Your preference is to spend more on savings and less on enjoyable money. In that case, you may not like categories that require 30%.
Even if there is a flaw, you may find it works well for 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 the entire budget is based on what you make in a month.
Doing this budget every week can be time consuming and confusing. So it’s best to do this once a month and calculate your entire monthly income at once.
50-30-20Budget related articles
If you enjoyed reading about the 50-30-20 rules, check out these articles next to find out more about budgeting!
Take advantage of your budget of 50-30-20 today!
Budget doesn’t have to be difficult. This option is a great way to get started with money goals quickly and easily, especially if you decide to use the 50 30 20 budget template.
Don’t forget to use your post-tax income as a base and split the money from there. Now that all the steps are in place, go ahead and start!
PS Here are other budgeting methods to explore. We also have budgets of 80/20, 60 20 20 rules, 70-20-10 budget, and 30-30-30-10 budget!