Alright Royals, it’s time to introduce you to another budgeting technique. Just incase the envelope budgeting system or the zero-based budget didn’t work for you, you can try the 50/20/30 budgeting rule. In case this is your first time reading one of my budgeting segments, I want to vocalize the importance of financial responsibility.The key to successfully budgeting is finding what works for you. It may take a little trial and error, but I’m here to help you get started and let you know it’s a lot easier than what you think!
What is the 50/20/30 Budgeting Rule?
The 50/20/30 budget is a fairly simple way to determine how much money you should be spending in specific categories. The numbers serve as percentages of your net income that should be allocated to essentials, financial obligations, and personal choices respectively. Many recommend this method for millennials that have no idea where to start when it comes to budgeting their money.
How do I use the 50/20/30 Budgeting Rule?
So let’s look a little more closely at the three categories you are supposed to assign your money to. Up to 50% of your income should go to “essentials”. Essentials are expenses you would have no matter who you were or how much money you made. These include the cost of housing, food, transportation, and utilities. The next 20% of your net income should be for expenses that help get you ahead or prepare you for your future. These expenses are things you have to pay for, but wouldn’t die if you didn’t have. Expenses in this category are things like contributions to a savings account, student loans or other debts, or anything else that falls under “getting ahead”. The remaining 30% of your income should be dedicated to voluntary obligations that enhance your life. These expenses include your cell phone, cable, internet, dining out, gym memberships, etc. You are responsible for defining what goes in this category.
Why should I use (or not use) the 50/20/30 Budgeting Rule?
|Don’t need high income to use the system|
B/c it is percentage based, the same proportions can be used and applied no matter what your salary is…even when your salary changes.
|Unclear definition of “voluntary obligations”
Some may view their gym membership or internet bill as an essential expense. Which will then only shrink what you have to pay for rent and other essentials.
|Easy & Simple|
As noted, this is a great start for anyone unsure of how they should be spending their money.
|Staying within these proportions may not work
Spending 50% on essentials and saving 20% may not be feasible in your current situation and you may find it hard to justify not cutting into that 20% so you can maybe have a nicer apartment
|Changes your way of thinking|
This system will force you to really think about your spending and how you prioritize your spending, as well as ensure you are making financial decision to positively impact your future.
|Argument that it should be 50/30/20
Why be spending 30% of your income on things you don’t need when you could be putting an additional 10% toward paying down debt and saving for retirement?
Have you tried the 50/20/30 budget? What budget method do you think would work best for you?