How to Use the 50/20/30 Budget

When I say budget, what is the first thing that pops into your head? Bills, debt, the future? There are a LOT of budgeting ideas around the internet. Personally, I find that the easiest method to use is the 50/20/30 budget.

Think of it this way:

1. Essential Costs: 50%

Groceries, rent or mortgage, car, groceries… anything that covers your basics. In order to get to a store to buy groceries, you need a car or public transport either would fit into this category. Do not spend more than 50% in this category.

2. The Future: 20%

It’s hard to think about the future, but I find it easier to think of it this way… debt free living. In this category, you will save for the future to make your financial foundation. Your financial foundation is being debt free (credit cards, student loans, etc.). You can even save a bit for a rainy day in this category, but first make sure that you pay off that debt.

3. Lifestyle: 30%

Lifestyle can be wants versus needs. Clothes, dining out, shopping, going to a movie or concert, etc.


Let’s be realistic for a minute

A budget is something that you utilize to keep you on track with how you want to live your life. There are numerous ways to budget and I am not saying that the 50/20/30 system is for you, but try it out and see what happens. I believe the best way to make sure that you are staying on track is to be held accountable for your actions. Make sure that you are not overspending and using credit cards. Do not create more debt when you are trying to get yourself out of it.

The 50/20/30 system works for take-home pay. Assume that you have already contributed to tax, health insurance, and 401K. Also, you do not have to use the total percentage unless it’s in the future area. Always, ALWAYS think about the future. If you do not use all of that 30% in lifestyle, put it towards debt. If you are not using all that 50% in essential costs, put it towards debt.

Try it out and see what you think. I do find that the 50/20/30 method is the easiest method to use.

Let me know what you think in the comments below!

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