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Are you ready for a simple budget that you can start today?
It’s actually one of the most common and easiest budgeting methods out there.
Starting a budget can feel OVERWHELMING!
I want to save you time researching to find the PERFECT budget template by telling you about the easiest budgeting method for beginners. Also, there’s no such thing as a perfect budget, just the one that works for you.
There are a few reasons I think the 50/30/20 budget template is great for anyone looking to start a budget:
- 50/30/20 budget has simple rules to follow (more on that below)
- It’s flexible and forgiving
- Organizes your finances in a logical way
- Best for beginner budgeters who just need a simple budget to get started
Using a budget can change your life.
We’ve used our budget to become debt free and created the ability to save at least 20% of our income every month for our BIG money goals. We started our budget in 2013 and it’s truly changed our life, values, and priorities.
Plus we’ve accomplished a LOTS of money goals we didn’t think were possible, like paying off $100,000 of debt in 5 years.
By the end of this short article, you’ll have a good idea of how to use the 50/30/20 budgeting rule and know if it’s right for you.
You can also get a cheap 50/30/20 budget template to start your simple budget today.
What is the 50-30-20 budget?
The 50/30/20 budget is a rule to help you set up your budget. I’ve found that budgeting is easier to do when there are rules and guidelines. Otherwise budgeting feels abstract and confusing.
So, what are the rules for setting up a 50/30/20 budget template?
You break your take home pay down into percentages for your different types of expenses.
- 50% of your income is for NEEDS
- 30% of your income is for WANTS
- 20% of your income is for SAVINGS and DEBT PAYOFF
All of your expenses and savings can be separated into one of those categories.
I like to think of it like having 3 buckets for your income. Each bucket carries specific expenses so it’s easier to manage and use your budget.
How does the 50/30/20 Budget Work?
Now let’s look at an example of how the 50/30/20 budget rule works with a real budget example.
Let’s say your monthly income and take home pay is $4,500.
Now you need to separate your income into wants, needs, and savings.
- 50% needs is $2,250
- 30% wants is $1,350
- 20% savings and debt is $900
Now every single thing you spend money on should fit into one of these three categories when you set up your 50/30/20 budget as a zero based budgeting template. Which means, at the end of the month, your income – expenses/savings should equal ZERO.
A great next step to setting up your 50/30/20 budget is to write down and brainstorm all of your expenses and savings goals. My Budget Workbook is a great resource to help you plan out your budget and expenses.
When you write down all of your expenses, you can easily separate them up into the correct percentage bucket and see if the 50/30/20 budget template is right for you.
If at first, one of your budget percentages is too high, it might be a good indication that it’s time to think critically about the expenses and savings goals that are most important to you and focus on including them in your budget.
And then find ways to lower expenses that you don’t care about as much.
You can also check out other budgeting rules and methods too.
Why the 50/30/20 Budget is the Easiest Budgeting Method
The 50/30/20 budget is one of the best budgets for beginners. That’s true for a few reasons.
- Simple to set up with your budget percentages
- Sets aside money to help you save money every month
- Focuses on paying off debt faster
- Isn’t super restrictive or limiting – you still get to spend money on WANTS every month. And 30% is a sizable chunk of your income.
Is the 50/30/20 Budget Rule Right for Me?
I honestly think the 50/30/20 budget template is perfect for anyone who just needs a place to start. Budgeting can feel OVERWHELMING at first. It feels abstract and like you should do things a certain way.
In many ways budgeting FEELS like starting a diet. The first thing you think of is limits and restrictions. But budgeting doesn’t have to be limiting.
A budget like the 50/30/20 budget rule will help you pay all of your bills AND give you permission to spend money on things you care about and value – like going out to eat, shopping, and Friday morning coffee runs.
I’m a big advocate for creating a values based budget, which focuses on your goals, values, and priorities in addition to paying all of your bills and debts on time.
The 50/30/20 budget template is perfect for including your values and goals into your monthly spending. It works great whether you use an annual budget or a monthly budget.
How to Create a 50/30/20 budget today
My goal in this blog post is to give you enough information and examples to actually make your 50/30/20 budget template today.
So let’s get started.
Know Your After Tax Income
Since this budget rule is based on percentages of your after tax income, you need to know how much money you’re making every month.
The best way to find this is to look at your pay stubs or your online banking if you have direct deposit.
Most budgets, ours included, are set up to pay all bills and expenses with two paychecks every month, so go back to last month and add up your direct deposits.
I love making a budget that pays all expenses with two paychecks, because twice a year we get 3 paychecks in a month. That means ALL of that 3rd paycheck feels like extra money we can use for fun and making faster progress toward goals like saving money and paying off debt. Read more on how extra paychecks is like finding extra money in your budget.
Set up your budgeting categories
Once you know your monthly take home pay, you can set up your 50/30/20 budget percentages.
I’m going to use our example of $4,500 take home pay we used earlier. That gives us budget categories that look like this:
- 50% needs is $2,250
- 30% wants is $1,350
- 20% savings and debt is $900
Determine wants and needs
This is where the work of making a budget happens. You need to figure out all of your expenses, savings, and everything you spend money on during the month.
I’ve found the best way to do this is to start writing them down. So grab a piece of paper and start writing. It doesn’t matter what order you write them in, just get them down on paper.
After you write down all of your expenses, it’s time to determine if that expense counts as a WANT or a NEED.
A good way to look at wants vs needs is if you can survive without it, or not.
Examples of Needs in the 50/30/20 Budget Rule
Here are a list of things I’d put in our NEED section of the 50/30/20 budget template:
- Mortgage/rent
- Groceries
- Gas for my car
- All utility bills for my house – electric, gas, internet, garbage
- Minimum debt payments
- Household supplies – toilet paper, soap, laundry, etc
- Daycare
- Insurance
- Dog Food
- Tithe/Giving
Of course your needs will be different from mine, and this is just a basic list to get you started. Add in any and all things you consider an absolute necessity.
Now onto the wants. This is where your budget can get really fun! There is really no limit to what your wants can be. The only RULE is to fit them all into 30% of your take home income.
Examples of Wants in the 50/30/20 Budget Rule
Let’s look at some examples of wants:
- Dining out
- Extra streaming services
- Gym membership
- Personal allowance (this is close to a need in our family)
- Drinks or food with friends
- Hobbies
With your goals and big money priorities in mind, go through the list of expenses you made and write WANT or NEED next to each of them. This doesn’t need to be the final decision for your expenses, you can certainly make changes as you use your budget. But identifying wants and needs is a great place to start.
And when you start adding up the numbers to see if you’re within the percentage rule, you might find that some things don’t fit into your budget right now.
Remember, that won’t always be the case. You can add more wants into your budget as time goes on. It’s okay to say ‘no’ to things now so you can say ‘yes’ to more in the future.
What counts as savings and debt?
Alright, this is my FAVORITE part of our budget. I love saving money and I love paying off debt.
According to a traditional 50/30/20 budget template, a lot of important expenses fit into the savings and debt section.
Here are things to keep in mind for your 20% savings and debt section of your 50/30/20 budget:
- Sinking fund savings goals – vacations, new house, emergency fund, car, holidays, etc
- After tax retirement contributions like Roth IRA
- Extra debt payments (recommended if you’re using a debt snowball spreadsheet)
Saving money for big life goals is important, and that’s why we use a Sinking Fund Tracker to know how much money we have saved for each goal. In a glance I can see how much is in our emergency fund, vacation fund, home improvement, and how much we have saved for Christmas.
If you struggle to organize your savings account, I highly recommend the Sinking Fund Tracker. Go grab yours now.
Retirement Contributions
Building your retirement portfolio is important, and there are lots of options to grow your nest egg. Many employers offer 401(k) options, which are amazing, especially when they offer an employer match.
It’s also a good idea to include after tax retirement options in your retirement portfolio, which aligns with this 20% savings and debt repayment.
A great place to start is a Roth IRA.
And if you have an old 401(k) from a previous job, you can actually roll that over into an IRA. I partnered with a great company Hi Capitalize who helps you roll over your 401k for free.
Making Extra Debt Payments
When making extra debt payments, it honestly doesn’t matter what kind of debt you have. Extra debt payments accelerate debt repayment for credit cards, student loans, even your mortgage.
My favorite way to pay off debt faster is with the debt snowball spreadsheet (you can download one for free right here). We used it, along with our budget, to pay off $100,000 of debt in 5 years as two teachers.
It’s been so effective for helping people get out of debt that I created a mini video course around it to give people the advanced strategies to accelerate debt repayment. You can get your debt snowball spreadsheet up and running in 20 minutes and have a clear roadmap to debt freedom.
It’s called the Debt Free Playbook. If you’re ready to get out of debt ASAP, this is a great tool for you. Go check it out.
In the 50/30/20, I look at debt repayment in two ways.
First, there’s your minimum debt payments. These are non-negotiable and belong on the 50% needs section of your budget.
But then there’s EXTRA debt payments, and those belong down here in the 20% budget category.
When you pay more than the minimum debt payments you will cut years off your debt repayment and save hundreds or THOUSANDS of dollars in interest. That’s what I teach and show you how to do in the Debt Free Playbook.
Get Started with Your 50/30/20 Budget Template
The 50/30/20 budget rule is perfect for anyone looking to start a budget. Whether it’s your first budget or your 20th budget, you don’t need any experience or past success to get started.
It’s the easiest and most common budgeting method, which is why so many people see success with it.
After calculating your after tax income, split it into three spending categories.
- 50% for needs
- 30% for wants
- 20% for savings and debt repayment
And remember, you’re going to have setbacks, forget to budget, and go over budget.
All of that is normal.
If you’re ready to start, grab my 50/30/20 budget template for just $5. This cheap budget breaks your spending down into a monthly budget template and annual budget all in one, easy to use spreadsheet.
If you have any questions about the 50/30/20 budget rule (or budgeting in general) leave a comment or head over to my YouTube channel for videos on budgeting, saving money, and getting out of debt.
Our budget and goals changed our lives and it can change yours too.
